New Year’s Eve is approaching and the Brexit transition period is scheduled to end simultaneously with the start of 2021. If it’s a no-deal Brexit, which is looking highly likely, what will happen to the European Market Infrastructure Regulation (EMIR) regime for UK investment firms?
What is UK EMIR?
UK EMIR is the UK version of EMIR.
The European Union (Withdrawal) Act 2018 (EUWA) enables the EMIR to be converted into UK law. To make changes to onshore EMIR at the end of the transition period, 4 statutory instruments were introduced, including The Over the CounterDerivatives, Central Counterparties and Trade Repositories (Amendment, etc., and TransitionalProvision) (EU Exit) Regulations 2018. Some parts are already in force and some will come into force on Brexit day.
What’s different in UK EMIR?
UK EMIR will be essentially the same as EMIR with slight tweaks at least in the near term after Brexit. We envisage no substantial difference in the UK EMIR and EMIR instrument reportability for now.
However, here are 2 examples of what will be different between the UK EMIR and EMIR regimes:
1. FCA will be the counterpart of ESMA
In terms of trade reporting, the UK Financial Conduct Authority (FCA) will take over European Securities and Market Authority (ESMA)’s functions and supervisory roles in the UK to govern the reporting entities that are obliged to report to a UK Trade Repository (TR).
2. Amendment and revocation of the current EMIR regulations
(a) Legal terms amended with reference to the UK legislation
Many of the EMIR terms contain references to other EU legislation. Under UK EMIR, these terms will be customised to reference other comparable UK legislation.
(b) Revocation of some current regulations
Upon Brexit, certain regulations won’t be applicable anymore and need to be revoked under UK EMIR. For example, ‘College’ under Article 18 of EMIR will be omitted from UK EMIR. The term refers to the groups of EU regulators that supervise the central counterparty clearing houses in the EU before Brexit whereas the Bank of England will be the competent authority responsible for such role after Brexit.
3. How much will a deal or no-deal scenario change things?
If there is deal Brexit, EMIR trade reporting will most likely stay the same as the current regime. On the other hand, in a no-deal Brexit scenario, UK EMIR will be materially similar to EMIR at the beginning, but there might be divergence from the EMIR down the road.
4. What trade repositories can I use?
Following a no-deal Brexit, UK investment firms will need to report to a TR registered by the FCA. These differ for SFTR and EMIR.
There might also be a dual reporting obligation under EMIR.
Delegated reporting is common for EMIR, what should I consider?
- If you are a UK firm and want to delegate your reporting to an EU firm (counterparty), you will need to check with them if they are willing to report to a UK TR for you.
- If you are an EU firm and want to delegate your reporting to a UK firm (counterparty), you will need to check with them if they are willing to report to an EU TR for you.
5. What happens to historical EMIR trade reports?
Data transfer across TRs between EU and the UK will be required if you need to change TR. You need to ensure you or your reporting delegate have the correct arrangement with relevant TRs and enable all relevant post-Brexit reporting. Both your open and closed positions will then be held in the new TR after a no-deal Brexit.