What do managers of Irish UCITS and AIFs need to know?
The European Market Infrastructure Regulation (“EMIR”) requires certain EU counterparties, including Irish undertakings for collective investment in transferable securities (“UCITS”) and alternative investment funds (“AIFs”), to put in place risk mitigation procedures prior to entering into OTC derivatives trades. This obligation includes a requirement to have in place procedures for the timely, accurate and appropriately segregated exchange of collateral with respect to OTC derivatives trades entered into on or after 16 August 2012 (the date EMIR came into force).
Over the past few years, European authorities have been working on Regulatory Technical Standards (“RTS”) detailing the procedures that must be put in place to comply with the EMIR collateral obligation. Until these RTS enter into force, counterparties are free to apply their own collateral procedures.
In October 2016, the European Commission adopted a Delegated Regulation setting out the final RTS in relation to the exchange of collateral. The Delegated Regulation was formally approved by the Council of the EU on 21 November 2016, but has not yet been published in the Official Journal of the EU. Once it has been finalised and adopted, the Delegated Regulation will enter into force 20 days after such publication. It is expected that the new rules in relation to the exchange of variation margin (the “VM Rules”) will apply from 1 March 2017, and counterparties should now start preparing for the implementation of these new VM Rules and plan accordingly.