When EMIR Refit was approved and adopted, we all thought it was a fantastic news and it was indeed. The major improvement was the exemption for reporting intercompany derivatives. When two entities belonging to the same group or having similar parent company, out of which at least one is an “NFC” (i.e. Non-Financial Company), they are not obliged anymore to report intragroup derivative transactions. However, to get full benefits from this reform treasurers need to apply for exemption to their domestic Supervisors and potentially to all other Supervisors, when they report on behalf of their affiliates. For example, if the group treasury centre is located in Germany, it should get a BAFIN exemption and therefore it should apply for according to the procedure defined by this supervisor (if defined) and it should apply for similar exemptions to all other Supervisors in the countries its affiliates are located (providing it reports on their behalf).
As explained above, the absence of pre-defined lay-outs and procedure to apply for exemption complexify the project. Unfortunately, not all the Supervisors have precisely determined how to apply for an exemption. If not obtained and notified, stopping reporting could generate risks.
EMIR was subject to the European Commission’s regulatory fitness and performance program (i.e. Refit) under which legislation is periodically reviewed to see if improvements can be made. The proposed amendments have been published and came into force on June 2019. EMIR regulation “Refit”, while having not changed the nature of the core requirements in EMIR, aims to unburden non-financial counterparties, small financial counterparties and pension funds from disproportionate and overly complex requirement.
Although such an exemption exercise can be done on your own, having a consulting firm to accompany the treasury team seems to be a good piece of advice.
One of the difficulties resides in the absence of full consensus and harmonized procedure and formats for applying for exemptions. In this regard, Luxembourg Supervisor (i.e. CSSF) seems to be the one which has the first and the best determined how to proceed for getting exemption (https://www.cssf.lu/en/supervision/emir/), which remains at the end of the day a formality – however, it must be done – i.e. notified and approved. At this stage not all EU countries are at the same level of preparation and in some of them the way to apply for exemption is not specified. The best in class Supervisors can maybe inspire treasurers for their exemption process.
Then the second major objective will be to notify banks to report external deals on behalf of the group central treasury. In my view, it would be better and safer to notify your demand for delegation to get evidence in case of litigation and to make sure the banks will execute what EMIR Refit has established (including reporting responsibility / accountability). This delegation of the obligation and responsibility for declaring / reporting is brand new. Before, you could delegate to your bank but you were still ultimate accountable for reporting. In case of reporting problems, corporates were still ultimately responsible. What now has changed is the responsibility for reporting. It will be ex officio (automatically) delegated to banks. Nevertheless, I do recommend notifying it to the banks in order to keep evidence of this transfer and on the date it will apply. Please note that this provision will be applicable as of 18th June 2020 (i.e. 12 months after EMIR Refit enforcement).
We should not forget other provisions of this “Refit” which are of interest too (e.g. absence of tainting rule in case of breach of clearing threshold; derivatives dedicated to hedging, although the concept is not clearly defined, are out of threshold calculation scope…).
Ideally, such a project must start by an impact analysis and assessment of the benefits (and costs, if any). The objective is to mitigate reporting obligations, to simplify processes and to reduce costs (e.g. Trade Register, LEI’s, time and resources spent internally to report, …). When the exemption requests will be obtained, the treasurer will revisit the procedure, the EMIR policy and adjust the IT systems and internal as well as external reporting. The phasing of the project must be cautiously thought and defined. As explained above, the absence of pre-defined lay-outs and procedure to apply for exemption complexify the project. Unfortunately, so far, not all the Supervisors have precisely determined how to apply for an exemption. If not obtained and notified, stopping reporting could generate risks.
It is why EACT, under AFTE leadership, tries to make a comprehensive list of all Supervisors processes to get full exemptions. It will be soon disclosed to all members. However, if you want to be ready to get the whole benefit of this “Refit”, you should start now your project. As explained, CSSF Luxembourg website is in my view the clearest and best designed. It can give you tips on how to proceed. Treasury is sometime to tie and untie complex regulation knots, isn’t it? At the end of the day, only the results count and simplifying the daily treasury job is useful nowadays.
Chairman of ATEL