JWG have had a look and, below, we pick out five key changes that are being proposed.
- Clearing obligation. ESMA is recommending two minor changes to the clearing obligation. These are designed to streamline the clearing process and make EMIR more adaptable to changing marketing conditions. The first is to introduce tools allowing the suspension of the clearing obligation when certain market conditions arise – this may well play into the concept of ‘exceptional market conditions which is being defined under MiFID II. The second change is to remove the frontloading requirement.
- Recognition of third country CCPs. ESMA is proposing to rethink the entire equivalence and recognition process in order for EMIR to better fit into a diverse global regulatory system. This is in light of ongoing difficulties with EU–US equivalency agreements. The idea is to simplify recognition decisions using a risk-based approach.
- Trade repositories (TRs). Another aim is to improve ESMA’s oversight of trade repositories, which have been under pressure over poor data quality ever since the regime went live. These proposals will boost ESMA’s enforcement powers, most crucially including increases in fines. They also proposed to clarify the language around the exact obligations trade repositories have regarding data quality.
- Calculation of margin requirements. The key change in terms of margin requirements will be the addition of a provision governing what CCPs are allowed to do when pricing data is not available. ESMA is proposing a framework of ‘appropriate governance’, including seeking advice from the risk committee, validation and testing.
- Counterparty classification. ESMA is recommending setting clearer processes that will need to be followed in order to identify quasi-financial counterparties and ensure that they are not confused with non-financial counterparties. They are also recommending that the hedging criterion for counterparty classification is removed in order to make the process simpler and, therefore, reduce the amount of misclassification.