May 14, 2019

European Council adopted a regulation improving the existing regulatory framework applicable to the market for over-the-counter (OTC) derivatives. This regulation, which simplifies certain aspects of the European Market Infrastructure Regulation (EMIR), will be signed in the week of May 20 and will enter into force 20 days after its publication in the Official Journal of the European Union.

The rule introduces a new category of "small financial counterparties," which will be exempted from the obligation to clear their transactions through a central counterparty (CCP), while remaining subject to risk-mitigation obligations. Smaller non-financial counterparties will also have reduced clearing obligations. In addition, the text extends by another two years (further extendable twice by an additional year) the temporary exemption from the clearing obligation of pension scheme arrangements. The updated rules also streamline the existing reporting obligations to improve the quality of the data reported, make the supervision more effective, and increase access to clearing by removing the existing unnecessary obstacles. All of this translates into simplified rules for non-financial counterparties, small financial counterparties, and pension funds using financial derivative products.

EMIR, which was adopted in 2012, forms part of the European regulatory response to the financial crisis and specifically addresses the problems encountered in the functioning of the OTC derivatives market during the 2007-2008 financial crisis. This regulation amends and simplifies EMIR to address disproportionate compliance costs, transparency issues, and insufficient access to clearing for certain counterparties.

 

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Effective Date: OJ+20 Days

Keywords: Europe, EU, Banking, Securities, FMI, OTC Derivatives, EMIR, Reporting, Pension Funds, CCPs, Clearing Obligation, Capital Markets Union, European Council