EMIR refit proposal

In the context of the EMIR refit proposal issued by the Commission at the end of 2017, ALFI has advocated for a lighter reporting and clearing regime, as well as for an exemption from the collateral exchange requirement for physically settled FX forwards.

Since its entry into force in 2014, the European Market Infrastructure Regulation has presented a triple challenge for eligible counterparties in the industry.

The reporting obligation has entailed the implementation of heavy daily disclosure processes for comprehensive business data at transaction level through the use of ESMA-authorised trade repositories. In addition, all financial counterparties (FCs) as well as major non-financial counterparties (NFCs) are subject to the costly clearing obligation of their transactions on rates and credit asset classes through an ESMA-authorised central clearing counterparty, and non-cleared transactions are subject to the obligation to exchange collateral.

Moreover, ESMA, trade repositories and NCAs are experiencing considerable data quality issues like inconsistencies (erroneous counterparty identification, currency conversion issues), missing data (absence of trade details), reconciliation issues between buyers and sellers.

In this context, ALFI has advocated the observation of proportionality, asking for the creation of a new category dedicated to smaller financial counterparties (SFCs) to avoid these falling under the obligations of clearing, collateral exchange and daily valuation, following the model of the NFC classification. It has been proposed to calibrate the clearing threshold of SFCs at the level of EUR 1 bn (as opposed to EUR 8 bn).

In its proposal, ALFI also recommended to not expand the FC definition to other entities currently considered as NFCs. So far the classification of counterparties has not been modified and the applicable definition stems from article 4 of AIFMD.

ALFI has further explained that investment funds use foreign exchange forward transactions predominantly for the purpose of hedging already invested assets. These transactions therefore do not represent a counterparty risk and should not require the exchange of collateral. In December 2017, the ESAs followed in this direction and started to amend their RTS 2016/2251 redefining the obligation of collateral exchange to apply only to transactions between credit institutions and investment firms, exempting investment funds. From 2018 onwards, the saving in non-pledged cash collateral for the Luxembourg fund industry has been material.

ALFI has also requested that this exemption be extended to FX swaps. To ensure competitiveness in a global context, the alignment of EMIR rules with Dodd-Franck in respect of the clearing exemption for the FX asset class is desirable from ALFI’s perspective.


François Baratte
Senior Industry Affairs Advisor, ALFI