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What is EMIR Refit?

EMIR Refit is a new regulation which will bring significant changes in 2020 to address issues under the current EMIR Regulation.

What’s different?

  • Backloading – Any derivative contracts that were outstanding on or after 16 August 2012 and terminated before 12 February 2014 do not need to be reported.
  • Intragroup with an NFC – Any intragroup transactions involving Non-Financial Counterparties (NFCs) will be exempt from the reporting obligation if certain conditions are met.  
  • Financial Counterparties (FC) responsible for NFC- – From 18 June 2020 an FC who trades with an NFC not subject to the clearing obligation (NFC-) will be responsible and legally liable for reporting both sides of the transaction.
  • NFC- trading with an FC outside of the EU – From 18 June 2020 an NFC- is not required to report as long as an FC reports to an equivalent regime outside of the EU.
  • Management company of UCITS / AIFs responsible – From 18 June 2020 if a UCITS or an AIF enters into a derivative transaction the management company will be responsible for reporting on behalf of the UCITS or AIF.
  • Authorised Entity of IORP responsible – From 18 June 2020 the authorised entity responsible for managing and acting on behalf of Institutions for Occupational Retirement Provision (IORP), that does not have legal personality, will be responsible for reporting the derivative contract on behalf of the IORP.

What does this mean for me?

The biggest impact for Financial Counterparties will be the responsibility to report on behalf of any Non-Financial Counterparty, not subject to the clearing obligation (NFC-).  This means you will need to first identify which of your counterparties you trade with are an NFC- (below the clearing threshold), for those that are below the threshold you will need to request some extra details so that you can fulfil your trade reporting obligations.

Example

ABC Broking has a diverse client base trading FX derivatives for speculative purposes. 90% of those clients are individuals but 10% are small companies. From 18 June 2020, ABC Broking will have the responsibility and liability to submit transaction reports for both itself and also its clients that are small companies.

What extra details do I need?

NFCs are required to provide information to an FC to allow it to report on its behalf.  If an NFC- wants to continue to report on its own behalf, it must let the FC know.

First, you will need to identify or confirm with your NFC if they are below the clearing threshold.  The current thresholds (gross notional value) are:

  • EUR 1 billion for OTC credit derivative contracts;
  • EUR 1 billion for OTC equity derivative contracts;
  • EUR 3 billion for OTC interest rate derivative contracts;
  • EUR 3 billion for OTC foreign exchange derivative contracts; and
  • EUR 3 billion for OTC Commodity derivative contracts and all other classes of OTC derivatives combined. 

Further, there are two fields which will need to be populated in the trade report when reporting on behalf of your NFC.  These are:

  • ‘Corporate sector of the reporting counterparty’

You will need to collect and be able to send to TRAction which category, or categories, your Non-Financial Counterparty corresponds to.

The following categories correspond to the main sections of Statistical Classification of economics activities in the European Community (NACE) as defined in Regulation (EC) No 1893/2006 of the European Parliament and of the Council:

  1. Agriculture, forestry and fishing
  2. Mining and quarrying
  3. Manufacturing
  4. Electricity, gas, steam and air conditioning supply
  5. Water supply, sewerage, waste management and remediation activities
  6. Construction
  7. Wholesale and retail trade, repair of motor vehicles and motorcycles
  8. Transportation and storage
  9. Accommodation and food service activities
  10. Information and communication
  11. Financial and insurance activities
  12. Real estate activities
  13. Professional, scientific and technical activities
  14. Administrative and support service activities
  15. Public administration and defence; compulsory social security
  16. Education
  17. Human health and social work activities
  18. Arts, entertainment and recreation
  19. Other service activities
  20. Activities of households as employers; undifferentiated goods – and services –producing activities of households for own use
  21. Activities of extraterritorial organisations and bodies

Where more than one activity is reported, list the codes in order of the relative importance of the corresponding activities, separating them with “-“.

  • ‘Directly linked to commercial activity or treasury financing’

The second field to be populated is to identify whether the derivative contracts entered into are related to commercial activity or treasury finance, as referred to in Article 10(3).

How can TRAction help?

TRAction can create this extra trade report for your NFC-, however you will need to be able to either send us this data through the Linked Server system by adding to a current field in MT4/MT5 or via a Client File Template.

Please contact us if you have any Non-Financial Counterparties below the clearing threshold and therefore require the new template for delegated reporting purposes.

Emma Ladlow

Emma works in our Sydney office. At TRAction, she works on implementing changes to regulations, improving and expanding our regulatory reporting services and helping with new business initiatives. She has over 7 years’ experience in the finance industry with more than 5 years’ experience specialised in transaction reporting. She worked for one of the largest financial services organisations in the UK and then moved to Australia in November 2018 to join TRAction.