Although it has yet to be formally designated as competent authority in respect of Regulation 648/2012 On OTC Derivatives, Central Counterparties and Trade Repositories (EMIR), the Central Bank of Ireland (Central Bank) has, in anticipation of its appointment, published an EMIR Q&A setting out its position regarding a number of queries regarding the practical implementation of EMIR.
The Q&A is a work in progress, and will be updated as queries are submitted for consideration by the Central Bank.
The Central Bank has indicated that:
- FX transactions with a settlement date beyond the spot date are to be considered as forward contracts falling within the definition of a derivative, and accordingly subject to the EMIR reporting obligation; and
- Generally, any trade with settlement of T+3 or greater will be treated as a forward transaction (on the basis that the general market convention for settlement of spot transactions is T+2) unless the market convention for such currency pair is greater than T+2.
The Central Bank notes its position is at variance with that of the Financial Conduct Authority (FCA) in the UK in respect of FX forwards carried out for commercial, rather than investment, purposes. In the Central Bank's view such trades fall within the scope of EMIR whereas the UK position is that they fall outside the scope of EMIR. The FCA's position is based on Part 13.4 of its Perimeter Guidance Manual, which states that FX forward contracts will fall outside the scope of MiFID where such instruments satisfy its "commercial purpose" test1.
On the basis of the Central Bank's guidance however, "the determination of whether a trade constitutes a reportable derivative contract should be based on the requirements applying in the country where the counterparty is located rather than that of the counterparty or the trade itself. Therefore, a T+5 FX transaction executed in the UK by an Irish counterparty is still to be considered a Forward transaction (and therefore a derivative) by the Irish counterparty and is subject to the reporting obligation."
Forward FX transactions will be captured under EMIR and accordingly subject to the reporting obligations, whereas a spot FX transaction will not be captured by EMIR. For this reason, the Central Bank's guidance as to what it considers to be a spot or forward FX transaction will be of significant practical importance for parties to such transactions.