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.