Could make our Corporate Treasurer’s life easier!
The European Commission has proposed a set of new measures to improve EMIR rules and to ease the reporting burden addressed by EACT (i.e. European Association of Corporate Treasurers). It also intends to simplify regulatory requirements for non-financial companies and MNC’s using derivative instruments. If agreed, these proposed changes could save operational costs for treasurers. The idea of this reform would be to introduce simpler and more proportionate rules for OTC derivatives to mitigate costs of compliance and admin burden for all market participants without compromising financial stability, key goal of the EU Commission and G20. Financial OTC instruments are regulated by the European Market Infrastructure Regulation (the so-called EMIR) adopted in 2012 as an answer to the GFC of 2008.
The objective is to simplify rules as well as to eliminate disproportionate costs to small(er) companies in the financial sector, for corporates and also pension funds.
What are the key amendments proposed?
1. Intragroup transactions will no longer have to be reported if one of the counterparties is a non- financial company. It is the major change to align EU rules to the rest of the world.
2. Reporting on historic transactions (so-called back-loading) will no longer be required. It is good news as we all know that some past transactions were not yet communicated to ESMA and TR’s.
3. For NFC’s – only non-hedging contracts will be counted towards the threshold triggering the clearing obligation. Again, it is a major improvement as we feared to have the hedging exception removed. However, the “hedging” notion is not yet well defined. This hedging exemption was critical. If not maintained the thresholds could have been too small for MNC’s.
4. Ease the administrative burden while introducing enhancements to guarantee the quality of reported data.
5. NFC’s will only have to clear the asset classes for which they have potentially breached the clearing threshold. There is no tainting rule applied.
6. Transactions between a financial counterparty and a small NFC will be reported by the financial institution on behalf of both counterparties. Here again, it is a big improvement for SME’s.
7. More time to develop clearing solutions for the pension funds (which can also be important for some corporates.
This is great progresses and a very positive outcome in terms of pushing through changes that would benefit NFC’s. Of course, this proposal will now to be subject to the co-decision procedure where the Parliament and the Member States will decide on a final text and will have to defend the amendments all along the co-decision procedure.
EACT together with other corporate end-users associa - tions (e.g. AFEP, IGTA, Assonime, European Issuers, …) have published a joint press release welcoming the Commission’s proposal (http//Europa.eu/rapid/press-release IP-17-1150) It was a long way and EACT put a lot of efforts and time to convince EU Commission and ESMA of the benefits of such a review of EMIR. The EMIR 2 will be as IFRS 9 a real improve - ment and great news for all treasurers across Europe. It was a long battle in which EACT dedicated a lot of resources to make sure we could all benefit from simpler provisions on OTC derivatives reporting.
François Masquelier, Chairman of ATEL and Vice-Chairman of EACT