The EBF fully supports the opportunity to comment on the proposal for a specification of the conditions under which the commercial terms under which clearing services are provided are to be considered to be fair, reasonable, non-discriminatory and transparent (FRANDT-requirements).
These requirements need to strike the right balance between the interest of clients in having unfettered access to clearing services on the one hand and the interests of clearing service providers. For example, as concepts such as reasonableness and fairness can only be assessed in relation to the prevailing market conditions, which can change over time, rendering FRANDT requirements unfit for purpose if they are calibrated too restrictively. This would likely also increase unnecessarily compliance costs, and it should be taken into account when drafting the rules.
The consultation paper generally recognises this by addressing both the difficulties clients may face in getting access to clearing services and the considerable challenges and costs
associated with establishing client clearing services. Again, it should be noted in this context that, apart from the factors mentioned under Section 4 of the Consultation Paper (in particular paragraph 23 to 27), the burdens associated with the constantly expanding complex regulatory requirements also work as a significant disincentive to establish or
expand client clearing services.
On this delicate basis, any decreased access to clearing as a result of additional regulation should be avoided. In this, the EBF is convinced that the FRANDT-requirements should be carefully calibrated as to ensure a meaningful addition to the existing requirements for the provision of clearing services.
Another central aspect in this connection is the mitigation and management of the risks associated with clients and client positions. As effective and efficient risk management is of paramount importance, institutions will always need to perform a risk assessment exercise before considering whether to offer or expand client clearing services and assessing under what conditions these services to existing or new clients should be offered.
It is also important that the FRANDT-rules do not result in a price regulation or an obligation to contract (cf. Recital 11 of EMIR Refit).
Furthermore, it should be taken into account that the conditions under which client clearing services can be provided are, to a considerable extent, determined by the relevant central counterparties (CCPs).
Having said this, we concur with the proposals made in the Consultation Paper to some extent.
However, certain aspects raise some concerns and should be reviewed in order to ensure that the FRANDT-requirements will ultimately achieve the intended purposes – thus facilitating the access to clearing services and encouraging institutions to offer client clearing services.
• Before adopting new delegated acts that would specify the conditions under which commercial terms in clearing agreements are considered to be fair, reasonable, non-discriminatory and transparent, the EBF believes that an assessment of the real impact of additional rules should be made, in particular considering whether further rules are needed in addition to the level 1 rules set out under EMIR.
• It should be taken into consideration how the introduction of such deeply prescriptive client classification criteria could negatively impact the service providers’ ability to correctly apply their risk management policies. In fact, certain proposals would require changes to these frameworks with the consequence that clearers would have to unwillingly assume certain risks, affecting their participation in the clearing market, even leading to market-exit.
• Requirements regarding the contractual documentation used in connection with client clearing services, in particular the proposal to require the institutions to publish the contractual agreements even where these are standard industry documentations (here, a reference to such standard documents should be entirely sufficient and would be clearly more appropriate) and
• The requirement to include applicable statutory requirements in the contractual agreement itself.
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]]>The European Banking Federation has responded to the Commission’s proposal to amend the European Market Infrastructure Regulation (EMIR). The EBF broadly agrees with the aim of the proposal to provide simpler and more proportionate rules OTC derivatives to reduce costs and regulatory burdens for market participants, however there are some important changes introduced in the proposal that should be reconsidered to ensure that the proposal continues to fulfil its original objectives and supports the Capital Markets Union.
Under the current European Market Infrastructure Regulation (EMIR), EU established securitisation SPVs do not fall under the definition of financial counterparties and they are designated as non-financial counterparties (NFCs). The Commission’s proposal to reclassify securitisation SPV’s, under EMIR, as Financial Counterparties from their current status as Non-Financial Counterparty’s (NFC’s) will subject these deals to the clearing and margining rules and will result in severe problems for existing deals. Additionally, we believe that imposing such intensive obligations (clearing and margin requirements) for SSPEs is unnecessary as SSPEs already contain risk mitigants and are protected from counterparty risks.
Physically-settled Foreign Exchange (FX) Forwards benefit from a temporary exemption of variation margin requirements under EMIR, however this exemption is only applicable until 03 January 2018, the day of the entry into application of MiFID 2. We request that FX contracts are excluded from the Margin RTS’ VM requirements, and instead an approach is adopted to VM for FX Contracts, for example via harmonized supervisory guidance or incorporating the VM provisions from the FX Guidance into the Margin RTS, that achieves closer alignment between the EU and other jurisdictions whilst still ensuring the relevant risks are adequately addressed.
With regard to trade reporting, we welcome the exemption of small non-financial counterparties (NFCs-) from the transaction reporting obligation given the operational complexity this is generating for these entities. However, requiring financial counterparties (FCs) to report both sides of their transactions with NFCs- would result in additional burden for FCs without improving the quality of the reported data. On these grounds, we recommend moving from a ‘dual-sided’ mandatory delegation regime to a single-sided reporting for FCs’ transactions with NFCs.
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The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
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