18th February 2013 - In an unexpected last-minute development during the European Parliament’s plenary session in Strasbourg last week, the ECON Committee decided to withdraw its motion rejecting two regulatory technical standards, developed to implement EU financial regulation EMIR, from the agenda of the plenary. ECON MEPs had originally expressed concerns that the standards would be too onerous for non-financial businesses and were not in line with EMIR requirements. Rejection by the plenary could have triggered a formal review of the RTS, postponing their entry into force. But with the motion off the table, Commissioner Barnier confirmed last week that “the standards can now enter into force 20 days after their publication in the Official Journal of the EU, most likely around mid-March.”
EMIR, the EU Regulation on over-the-counter (OTC) derivatives, central counterparties and trade repositories, entered into force on 16 August 2012. It translates the commitment made by the EU at the G20 Pittsburgh Summit in September 2009 to trade most standard OTC derivative contracts on exchanges or electronic trading platforms and to clear them through central counterparties by end-2012 at the latest.
The technical standards necessary to implement the Regulation were adopted by the European Commission in December. This gave the European Parliament and the Council until 19 February to exercise their scrutiny rights. While the Council appeared inclined to follow the Commission proposal, the ECON Committee initially expressed some reservations and was expected to recommend that the plenary reject two of the developed technical standards.
These concerns were very much in line with the concerns of EURELECTRIC and other non-financial stakeholders. Since the beginning of the legislative process, EURELECTRIC had stressed that EMIR should recognise the specific hedging needs of electricity companies by imposing proportionate measures, without affecting EMIR’s overall aim of
reducing systemic risk and increasing transparency in financial markets. Commercial and treasury hedging activities carried out by electricity utilities do not pose a threat to the financial system and should therefore be exempt from clearing requirements. We had also highlighted that the ‘systemic relevance’ should be a key criterion to be taken into account when defining this threshold.
However, following the surprise withdrawal of the ECON motion last week, Commissioner Barnier’s statement makes very clear that the RTS will now enter into force around mid-March. The Commission has nevertheless taken some steps in order to accommodate the ECON Committee’s concerns. It will now introduce a three-year phase-in period for the clearing obligations for non-financial counterparties and clarify the confirmation deadlines. According to our understanding this would mean that the clearing obligation will not kick in before 2016. But it is still unclear whether this will also apply to the obligation on non-financial counterparties to notify regulators of a breach of the clearing threshold.
Meanwhile other obligations (i.e. transaction reporting and mandatory risk management techniques) will enter into force as originally foreseen. The Commission has announced that it will publish an overview of FAQs as well as amended RTS in the coming weeks.