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Industry implications of EMIR reported in first round of reviews by FCA

It’s been well over a year since EMIR, the regulatory cousin to the US Dodd-Frank Rule, began to be enforced. While the regulations which make central clearing for some OTC derivatives, risk management and trade reporting mandatory, are not seen to be as clenching as the American version, they are at least as cumbersome to follow, and are taking even longer to roll out. So how is the industry taking it?

The Financial Conduct Authority (FCA) just released the results of its first review, which surveyed both financial and non-financial firms on their existing and future plans for compliance with EMIR. Some key issues were highlighted.
For financial counterparties complying with requirements for timely confirmation and bilateral risk management, non-standardized products, presented a challenge since they are difficult to categorize under the rules. Financial firms were also forced to review their internal processes in particular for intra-group trades as well as those for bespoke OTC transactions. In addition, they were found to be negotiating with EU as well as non-EU counterparties on arrangements for reconciliation. Overall, the consensus seemed to be that electronic platforms were helpful for financial counterparties in maintaining their transactions within the designated timeframe.

As far as non-financial counterparties who must clearly define their hedging activity and keep within the clearing requirements, many were not prepared. However, many were able to successfully classify their hedging and non-hedging transactions, and were already planning their methods for reporting.

About the author

Nik Venema's picture

Nik Venema

Communications Manager, FINCAD

Nik Venema weaves FINCAD's written and visual narrative across its suite of fast, accurate, flexible, transparent, and holistic valuation and risk solutions. Prior to this, Nik worked in Quantitative R&D at FINCAD as a Technical Writer and Financial Engineer. Nik holds an undergraduate degree in Finance from the University of the Fraser Valley and an M.Sc. in Finance from Simon Fraser University. Addtionally, Nik is an Instructor of Financial Engineering and Risk Management in the University of the Fraser Valley.


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