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EMIR relief for corporates

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The European Commission proposes new measures that may alleviate the EMIR reporting burden on businesses.

Last week, the European Commission announced a new set of measures that will impact the US$544trn over-the-counter (OTC) swaps market.

The move comes after a review of the European Markets Infrastructure Regulation (EMIR) rules put in place in the wake of the financial crisis to address market risk.

Most notably for corporate treasurers, the revised rules will streamline reporting requirements and reduce the administrative burden placed on non-financial corporates that use derivatives.

An unfair burden

Under the existing tranche of EMIR rules, dual-reporting is mandated for all OTC and exchange traded derivatives (ETD), requiring both counterparties to submit data on the trade. This information has to be delivered to a trade repository within one business day.

What is more, non-financial corporates above the clearing threshold in a defined asset class are required to clear those OTC derivative contracts centrally.

These rules have caused problems for the corporate treasury community who have rarely been asked to deliver such complex information.

And complying with these rules has come at great cost. According to a 2015 survey by the European Association of Corporate Treasurers (EACT), 68% of companies spent between €0 and €50,000 on the initial implementation of EMIR compliance. Just over 10% said they had spent more than €200,000.

In addition, there is an annual cost, with 85% of respondents saying that it costs them between €0 and €50,000 to stay compliant.

Overall the EACT estimates that combined European companies spend between €2.4bn and €4.6bn annually to remain complaint with EMIR.

Details of the rule change

The headline changes to EMIR, according to the press release from the European Commission include:

Reporting requirements

Under the proposal, reporting requirements are being streamlined for all counterparties. This will considerably reduce the administrative burden while ensuring that the quality of data needed for monitoring derivatives markets and identifying financial stability risks is not lost.

In particular, derivative transactions concluded on exchanges (so-called 'exchange-traded derivatives') will now only be reported by the central clearing party on behalf of both counterparties.

To reduce the burden for all non-financial counterparties, transactions concluded between companies belonging to the same group (so-called ‘intragroup transactions’) will not have to be reported any longer, if one of the counterparties is a non-financial company.

To reduce the burden for small non-financial counterparties, transactions between a financial counterparty and a small non-financial counterparty will be reported by the financial counterparty on behalf of both counterparties. Reporting on historic transactions will no longer be required. In addition, the proposal aims to improve the quality of reported data.

Non-financial counterparties (NFCs)

Non-financial counterparties, use OTC derivatives to cover themselves against risks directly linked to their commercial or treasury financing activities ('hedging'). Also in the future, only non-hedging contracts are counted towards the thresholds triggering the clearing obligation.

While under the current rules NFCs must clear all derivatives, if they exceed the clearing threshold for one class of derivatives, the Commission is now proposing that NFCs clear only the asset classes for which they have breached the clearing threshold, thereby reducing the burden for NFCs as they only have to centrally clear the asset classes in which they are most active.

Welcome relief

The news will likely come as a relief to corporate treasury professionals who have long bemoaned the regulatory burden that EMIR has placed on them.

A press release supplied to Treasury Today by Jean-Marc Servat, Chairman of the European Association of Corporate Treasurers – an organisation that has been lobbying the European Commission – states that: “organisations representing more than 8,000 companies across Europe have welcomed today’s EMIR proposals by the Commission as an important step forward in relieving burdens for businesses which use derivatives to manage their commercial and financing risks.”

The release adds that: “Addressing these burdens must be achieved while improving data quality for supervisors. It is clear this can be delivered by moving to an entity-based reporting regime as practised internationally today, where data is delivered to supervisors via straight-through-processing undertaken by financial firms. Other major international jurisdictions operate today on the basis of such a single-sided reporting regime for companies hedging for commercial purposes”.

Are you happy with the changes?

Treasury Today is interested in hearing whether the treasury community is happy with the proposed changes to EMIR.

If you have any comments then contact the editorial team at editorial@treasurytoday.com

Reader Comments 

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  1. If the proposal will be accepted, it might indeed be a relief for quite a few corporates, even though the costs (seriously billions?) estimated by EACT are, in my opinion, way too high. The downside for corporates working with banks outside the EEA area? These trades still will have to be reported. Corporates having such transactions will need to maintain the same infrastructure (systems, processes,...) as before to report those trades. For those corporates, and there are quite a few, there won't be any substantial savings at all.
    mstreamo's Gravatar

    mstreamo 2017-05-11 10:06:14