EMIRefit or the way to complexify the simplification

 

After a long fight (not the first), EACT (i.e. European Association of Corporate Treasurers) obtained the exemption of inter-company transactions. What good news! But to get that exemption, you must be persistent.

 

Indeed, obtaining exemption from inter-company transactions is a true way of the cross. Beyond the time limit of three months before obtaining the response from the national supervisor, the procedure is complicated. The application request formats are different for each country. Some are happily better organized than others and some have provided a format while others not at all. The language is also different and sometimes the local language. Good luck if you do not speak Croatian or Hungarian, for example ... However, we can expect that English should be enough ... in principle.

 

In Luxembourg, where for once the approach via the website of CSSF is one of the clearest, there are no less than 84 questions with additional annexes. It's not simple at all. If your group treasury center is in Amsterdam and you deal with the other 26 EU countries, you will need to get the exemption in Holland, but also in all the other countries of your subsidiaries. When you know everything, you can stop reporting the intercompany. On the other hand, when a new entity appears, you will have to ask for the exemption again, even if you had already requested it for other entities. Why keep it simple when it can be very complicated? This is fortunately an opportunity to revisit and control the EMIR compliance process. The request for exemption is so complete that it requires review of all documents, including ISDA agreements, scope of consolidated companies (not JV's), group organization chart, "Service Level Agreements", etc.

If after having obtained all your exemptions you acquire a new entity with which you deal derivatives (i.e. inter-company FX dealing), you will be able to hedge and deal these FX derivatives only if you have obtained (again) the exemption from the supervisor from the country your new subsidiary is domiciled. If not, are you exempt while your new entity is not?!? You may have to wait up to three months (maximum timing to obtain an answer from a supervisor re. exemption of intercompany derivatives) .... Let's hope the markets will not move too much in the meantime because your affiliate won’t be hedged. Formalism, when you hold us! Too bad the ESMA refused to standardize the exemption requests. It would have been a bit easier. But it would have been too easy for our European officials. They have already had to give up on the exemption, so you do not think there was any question of facilitating the work of the group treasurers. They left autonomy to the national supervisors, which aren’t organized and haven’t standardized the exemption process.

"In Luxembourg, where the approach via the website of CSSF is one of the clearest, there are no less than 84 questions with additional annexes."

One case worried us: the case of Irish interpretation and exception. For example, a European group treasury center based in Dublin cannot/couldn’t be exempted if it belongs to a non-EU entity, for example a US parent company. The interpretation is surprising. If it persists or multiplies, ESMA will have to be questioned to decide which interpretation corresponds to its own views. It would be illogical for me to stick to the Irish interpretation which makes them less competitive (for once). I reassure you and cannot think that it will hold on. It seems so illogical, isn’t it ?

We can guess it by reading these lines, the EMIR refit interco exemption procedure is very (too much) complicated. We won a battle, but not at any price, I'm afraid. Be courageous! Try to be focused to settle these requests for exemption as quickly as possible. I will not fail to keep you informed of the interpretation of this rule and the problems to be considered with this exemption process.

François Masquelier, CEO, SimplyTREASURY