Following a detailed consultation process undertaken by the Department of Finance, it is anticipated that the Minister for Finance will shortly enact legislation (the “Regulations”) appointing the Central Bank of Ireland (the “Central Bank”) as the National Competent Authority for the purposes of the European Markets Infrastructure Regulation (“EMIR”). In advance of publication of the Regulations, the Central Bank has published ‘Frequently Asked Questions’ (the “EMIR FAQ”) - available here.
We have summarised below certain clarifications contained in the EMIR FAQ which might be useful for fund managers who manage Irish authorised funds (and who are therefore within the scope of Irish EMIR rules) in the context of EMIR reporting:
- Scope of FX Forwards for EMIR Reporting Purposes
By way of background, recent correspondence and consultation involving ESMA and the European Commission has focussed on the definition of a ‘derivative’ contract for the purposes of EMIR. In particular, there has been consideration as to whether or not FX forwards fall within the scope of EMIR reporting requirements. The uncertainty has arisen due to the fact that a ‘derivative’ contract under EMIR is defined by reference to MiFID (Directive 2004/39/EC) which has been transposed differently by various Member States leading to potential inconsistencies in the application of EMIR with respect to FX forwards.
While both ESMA and the European Commission have acknowledged that a harmonised approach to the definition of FX forwards for EMIR purposes would be desirable, in light of the current uncertainty, the Central Bank has issued the following guidance:
- all FX transactions with settlement before or on the relevant spot date are not to be reported;
- all FX transactions with settlement beyond seven days are to be reported; and
- all FX transactions with settlement between the spot date and seven days are to be reported only if, in a jurisdiction where one counterparty to the trade is located, local laws, rules or guidance would deem the transaction reportable. Where an Irish counterparty is entering into FX transactions with a counterparty located in another jurisdiction, the Irish counterparty should rely on documentation from that counterparty to inform it as to whether there is a requirement in the relevant jurisdiction to report the transaction.
The Central Bank has indicated that it may re-visit this guidance following theenactment of the Regulations or as a result of related European developments.
- Supervision and Compliance with EMIR Reporting Requirements
For Irish financial counterparties, supervision of EMIR compliance will be incorporated into the Central Bank’s risk- based approach to supervision (PRISM). A specialist EMIR unit has been established by the Central Bank for the supervision of EMIR compliance by non-financial counterparties.
- Non-acceptance of Trades by Trade Repositories (“TRs”)
The Central Bank has recommended that all efforts are made to report trades to TRs as soon as possible and that detailed records are maintained of steps taken to resolve any difficulties which may arise so that information can be made available to the Central Bank, if requested. It is helpful to note that the Central Bank has recognised that there may be initial technical difficulties in terms of reporting trades to TRs.
- Is there a Central Bank approved or preferred TR?
The Central Bank has confirmed that all ESMA registered TRs are equally acceptable in discharging reporting obligations. The Central Bank has emphasised that it is important that all trades are reported, not that they are reported to the same TR - therefore, a single entity could report different trades to different TRs. A list of registered TRs is published on the ESMA website – available here.
Practical guidance is also provided, in the EMIR FAQ , in respect of:
- the obligations on an Irish entity transacting FX trades with another Irish counterparty;
- the process to be followed in order to obtain a Legal Entity Identifier (LEI) code;
- the process for making an application to avail of an intra-group exemption; and
- the requirements regarding the submission of monthly unconfirmed trade reports.
Additional EMIR Guidance
Fund managers managing Irish authorised funds should also be familiar with the following publications which provide useful guidance in the context of EMIR reporting: