Treasury Today Country Profiles in association with Citi

Surviving EMIR: the Ahold way

Sandy beach with lifebuoy

Trade reporting requirements under EMIR came into force yesterday (12th February). Many corporates were hoping for an extension to the deadline, but not Ahold. The international retailing group managed to get ahead of the game by prioritising EMIR over other projects and with treasury and legal working hand in hand.

Speaking during an exclusive Treasury Today webinar this week, Ahold’s treasury and legal teams outlined their journey towards EMIR compliance. The company, which is classified under EMIR as an NFC-, has a centralised group treasury and only uses derivatives to hedge underlying exposures. Nevertheless, with nine different entities involved in circa 700 intra-group trades across four countries, as well as 100 third-party trades (with approximately €100m NPV outstanding at any time) across eight different banks in the UK, US, Europe and Japan, it was clear that EMIR would have a significant impact on Ahold’s treasury operations.

Trade reporting strategy

While EMIR was on Ahold’s radar before the trade reporting start date became imminent, there were a number of uncertainties around the regulation that made it difficult to develop a trade reporting strategy early on. These challenges included ‘grey’ areas in national regulators’ interpretation of the regulation – in the UK, for example, FX forwards are not in scope, but they are in other EEA countries. Also frustrating was the lack of approved trade repositories (TRs) at the time that Ahold was developing its reporting strategy. This made it very difficult to compare offerings and pricing. These challenges were exacerbated by a limited proactive approach from many of the company’s banks.

But by working closely with Ahold’s in-house legal team, an EMIR trade reporting strategy and (albeit ambitious) project timeline were drawn up. The decision was taken to report directly to a trade repository: UnaVista. Legal Entity Identifiers (LEIs) were obtained for all entities and communicated to banks; the TMS was geared up for generating Unique Trade Identfiers (UTIs); and operating companies were informed of their obligations. Soon, Ahold was able to achieve EMIR compliance.

This was by no means an easy accomplishment, however. According to Andy Nash, SVP Treasury at Ahold, “Across the project team, there was a substantial amount of discussion and work to ensure the company’s compliance with EMIR. Collectively, I would calculate that between 160-200 hours, four to five working weeks, have been dedicated by the team. This was achieved with Nadine Grevaz, Treasury Director, and Kicky Reef, in-house Legal Counsel, being very proactive and working closely together; we also had to delay other projects that we had scheduled in 2013/14.”

On the right path

In addition, despite Ahold’s reporting processes and procedures entering into testing before the 12th February start date, there have been a few teething troubles. Speaking about the delivery of UTIs for back-loaded trades, Gavin Jones VP Treasury explained: “We have had to constantly push and remind the banks to deliver UTIs for back-loaded data. Indeed, we had to chase one up this morning [11th February], so it is coming down to the wire. I think this demonstrates how the banks themselves are struggling to deliver EMIR.”

He continued: “We use FXall which is fully integrated into our TMS, and we successfully tested the UTI generation that the vendor is producing. Only one of our banks has confirmed that they currently can’t use an UTI generated by the trading platform. As we want to keep a standard way of working on EMIR compliance, we may suspend trading with that bank until they can accept an FXall generated UTI.”

So it is not just corporates that are finding EMIR compliance tough. With banks also floundering, will we soon see sanctions flying left, right and centre? According to Michelle Moran, Partner at leading legal firm Ropes & Gray LLP – who gave a useful summary of corporates’ EMIR obligations during the webinar – regulators have not given any assurance that they will forebear from taking actions against regulatory breaches and every effort should be made to achieve EMIR compliance. Anecdotal evidence does however indicate that regulators are unlikely to take enforcement action against technical breaches (such as reconciliation problems) which arise during the settling in period.

In other words, minor transgressions may be tolerated initially and the focus will be more on helping companies to become compliant, rather than punishing minor instances of non-compliance. That said, treasurers should be aware that all forms of non-compliance could potentially lead to enforcement action.

To find out more about Ahold’s successful EMIR project, premium subscribers to Treasury Today can access a recording of the webinar on-demand. Also available are an informative deck of EMIR slides from Ropes & Gray LLP, and Treasury Today’s practical EMIR checklist.