Sensible timeframes please!

The final text of EMIR (European Market Infrastructure Regulation) entered into force on 16th August and the next milestone for ESMA, to complete the Level 2 text by the end of September, is fast approaching. ESMA’s consultation on the draft technical standards received over 130 responses before the 5th August deadline. Whilst there is general support for the key aims of EMIR, in respect of risk reduction through central clearing and increased regulatory transparency through trade repositories, a number of concerns have been voiced.

From a sample of the responses one can deduce that there is general support for what ESMA is trying to achieve, but this task is by no means complete. The FOA in its response asks ESMA to consider the costs and seeks more clarity, in particular around identifying which of the standards are intended to apply only to OTC contracts and which will apply to both OTC and exchange-traded contracts. The IMA response highlights concerns around margin, collateral, FX, the timetable and the mammoth re-papering exercise that will be required to see the EMIR changes through. In their joint response ISDA, AFME, BBA and Assosim support the key aims underpinning EMIR, but call for greater EU interaction with the US regulators and with other G20 regulatory regimes.

The differences between EU and US reporting and clearing requirements and exemptions will become clearer as the EMIR technical standards are finalised. We already know that the implementation timetables in these jurisdictions differ. For Dodd-Frank, signed into law on 21st July 2010, the approved definition of swaps takes effect from October 2012, whereas EMIR entered into force in August 2012 and the related ESMA technical standards are not yet finalised. On a global front the EU and the US are at a more advanced stage of implementing regulatory reform than other G20 regions. The timing of the rules setting in each region is a major cause for concern, as echoed in recent letters to the CTFC citing legal uncertainties around extraterritoriality.

The implementing technical standards for Europe are widely anticipated to be completed by the end of the year, in line with the G20 deadline. But with reporting obligations kicking in as early as July 2013 will this schedule allow sufficient time to address the industry’s concerns?

As ESMA considers the responses, is more time required to get the detail right?

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