Background of EMIR:
EMIR is a forthcoming EU-directive that addresses some of the concerns that came to focus at the financial crisis in 2008.
The financial crisis brought over-the-counter (OTC) derivatives to the forefront of regulatory attention. The near-collapse of Bear Sterns in March 2008, the default of Lehman Brothers on 15 September 2008 and the bail-out of AIG highlighted the shortcomings in the functioning of the OTC derivatives market.
In EU, a set of regulation is under draft, a new directive “EMIR” (European Markets Infrastructure Regulations) is planned to take force after December 31st 2012.
Objectives are:
to shift as much OTC-derivatives from bilateral credit risk to Central Counterparty Clearing
to increase transparency for regulators on financial institutions exposure
to promote use of more standardized products
So who should care about EMIR?
EMIR will impact all “financial” companies (with temporary exemption for pension funds) for example banks, fund managers, insurance companies.
What is less known is that also corporates will be affected.
Those corporates that trade extensively (=more than just to cover commercial risks) will fall under the EMIR requirements in full, but also all other corporates will be directly impacted by some parts of the regulation:
Timely (quick) confirmations on all OTC-derivatives trades will be required, and done electronically if option is available.
Portfolio Reconcilation in an auditable and documented process will be required.
Reporting of trade details to the new Trade Repositories (introduced with EMIR) will be required.
The third and fourth category are Central CounterParty (CCP) organizations and Trade Repositories, for which EMIR states detailed requirements.
So, if you fall under any of these four categories – a good advice is to face these requirement prepared – being late can be costly!
Mikael Englund
Strategic regulatory consulting,
Bearing Consulting Ltd