Although the pending reforms to the European Market Infrastructure Regulation (EMIR), commonly referred to as EMIR REFIT,1 have not yet entered into force,2 US and other non-EU managers of non-EU alternative investment funds (AIFs)3 should start determining now whether they will be affected, and, if so, commence preparations for compliance. Any non-EU AIF that is currently classified as a third-country non-financial counterparty (NFC) that is below the applicable EMIR clearing thresholds (NFC-) is likely to be affected.
Third-country NFC-s will be impacted by EMIR REFIT in the following ways:
• such entities will be required to post variation margin and possibly initial margin on all over-the-counter (OTC) derivatives entered into with all EU counterparties that are either financial counterparties (FCs) or NFCs over the applicable EMIR clearing thresholds (FC+s and NFC+s, respectively);
• even if the affected non-EU AIFs are already posting margin to their EU-counterparties despite it not being currently required under EMIR, their EU counterparties will need to ensure all margin agreements are EMIR-compliant which may require repapering of existing documentation; and
• although less likely, it is possible that EU AIFs that are currently classified as third-country NFC-s will be required to clear all OTC derivatives subject to an EU mandatory clearing obligation through an authorised central counterparty (CCP) and trade such OTC derivatives on a regulated trading venue in the European Union.4
EMIR REFIT will enter into force 20 days after publication in the Official Journal of the European Union, which is expected to take place in May or June 2019.
EMIR entered into force in 2012 as part of the EU’s G20 reform measures for OTC derivatives. EMIR introduced reporting obligations for all exchange-traded and OTC derivatives and clearing and risk management obligations for OTC derivatives,