A new milestone in EMIR REFIT enforcement and needed clarification from ESMA

EMIR REFIT Proposal is ongoing since early 2017 to simplify and proportionate EMIR especially for Non-Financial Counterparties (NFCs).Trilogue (European Commission, Council and Parliament) discussion was positive in February 2019 for a potential legislative adoption prior to May 2019 elections.

ESMA made recommendations in Q1 2019 to revisit 2 key requirements from regulation (EU) No 648/2012 (EMIR).

Note that ESMA is not competent to dis-apply a directly applicable EU legal text or even delay the start of some of its obligations. Any change needs to be implemented through EU legislation.

Nevertheless, ESMA expects competent authorities not to prioritise their supervisory actions on these 2 topics towards financial counterparties while Refit is finalised and voted.


1.       Clearing and trading obligations for small financial counterparties proposal

Initial EMIR requirements:

  • include Interest Rate and Credit Derivative trades that are subject to the clearing obligation at a recognized CCP.
  • affect “category 3” financial counterparties that are above €8 billion in aggregate month-end average of outstanding gross notional amount of non-cleared derivatives at Group level.

ESMA made a recommendation that has received support from the European Parliament and the European Council to exempt from the clearing obligation the “small financial counterparties (FCP)”, by creating a new category of financial counterparties whose derivative positions are below the clearing thresholds and by distinguishing thresholds for Interest Rate vs Credit Derivative.


ESMA recommendation triggers a timing challenge, since clearing obligations for “category 3” financial counterparties was initially effective as of 17th of June 2019.

  • Financial counterparties exempted under EMIR from the clearing obligation are also exempted from the trading obligation for derivatives from MiFIR. Small financial counterparties still need to consider the pricing impacts and potential arbitrage (cleared priced becoming more & more competitive), but if they keep bilateral trades they will have to monitor closely clearing thresholds and respond to regulators questions.

Asset Managers managing mandates on behalf of clients above thresholds will still have to clear vanilla IRS and CDS part of the clearing obligation , while they might decide not to clear for their funds.

The clearing volume increase expected by CIBs and CCPs may slowed down with potential efficiency impacts, but we also expect CIBs and CCPs to pitch their clients to update them on their clearing offerings and highlight pricing differences between cleared and uncleared trades.


ESMA published a statement on July 12th, about the application date of clearing obligations under EMIR Refit. As a reminder, EMIR Refithas a larger scope of application than MiFID trading obligations in term of counterparties.

  • Alignment of trading obligation date for derivatives with clearing obligation date should be submitted to the European Parliament by 18 December 2020.
  • The situation is legally unstable. Although ESMA cannot legally postpone EMIR Refit begin date, its position is not to focus controls on counterparties with no clearing obligation.
  • According to the ESMA, this begin  date is not 21 June 2019 but four month after the counterparty notification to ESMA and national authorities on clearing threshold, i.e. 17 October 2019 at the latest.


2.       Backloading requirements for reporting entities proposals

Initial EMIR backloading requirements were to report derivatives that were outstanding on or after August 16th 2012 and terminated before the 12th  of February 2014. Following ESMA’s recommendation, the European Commission has already extended the deadline for the completion of backload from 12th of February 2017 to 12th of February 2019.


ESMA observed that there was a very high number of reconciliation failures regarding the derivatives to be backloaded, while entities needed to make substantial and costly adjustments in their reports. Therefore ESMA made the following recommendations, supported by the European Parliament and the European Council:

  • Waive the backloading requirements including Intra-group transaction involving NFCs.
  • When relevant, FCPs will be required to report on behalf of NPCs.
  • Asset Managers remain responsible for reporting on UCITS & AIF funds behalf.

Consequently, the obligation to backload trades terminated before February 2014 has been waived due to all operational  issues faced by the industry.A major hurdle with regulatory uncertainty and operational challenges is now over.

EMIR Refit is not a game changer at this stage but this is also a good opportunity for all actors across the value chain to win market shares on clearing and collateral management in general and think about their hedging and clearing strategies