ESMA advises Commission on sovereign debt: ESMA has published its advice to the European Commission on whether it should develop a European creditworthiness assessment for sovereign debt. ESMA considers:

  • the independence of the rating process;
  • the review function of rating methodologies;
  • the confidentiality of all rating sensitive information; and
  • the need to have sufficient resources to ensure the continuity and the quality of the rating process.

The Commission will report to the European Parliament and to the Council by the end of the year. (Source: ESMA Advises Commission on Sovereign Debt)

Commission responds to ESMA on frontloading: The Commission has responded to queries that ESMA raised with it on frontloading and the European Market Infrastructure Regulation (EMIR). ESMA had noted that the application of the frontloading requirement does not always ensure the objective of transparency and fairness but in fact, when applied to certain OTC derivatives, may have substantial negative effects on the functioning of the market, financial stability and systemic risk. EMIR allows for disapplication of the principle in such cases, and the Commission has stated its view that the frontloading of OTC derivatives should be avoided in cases where it would not help to achieve EMIR's objectives. So it says the determination of remaining maturities should be carefully assessed in particular, taking into account the specificities of the different classes of OTC derivatives and the degree of uncertainty inherent in the period between (i) the notification of a class of derivatives to ESMA and the entry into force of the RTS that introduce the clearing obligation for that class of derivatives and (ii) the entry into force of the RTS and the date of application of the clearing obligation provided for in the RTS. (Source: Commission Responds to ESMA on Frontloading)

ESMA updates AIFMD FAQs: ESMA has updated its FAQs on the application of the Alternative Investment Fund Managers Directive (AIFMD). The new questions mainly relate to reporting. (Source:ESMA Updates AIFMD FAQs)

ESMA consults on UCITS counterparty risk assessments: ESMA is consulting on calculation of counterparty risk by UCITS which enter into OTC derivative transactions that EMIR requires to be centrally cleared. It feels it may need to make recommendations to the Commission on this issue. The discussion paper asks for views on how UCITS should calculate these limits and whether the same rules should be applied by UCITS for both centrally cleared OTC transactions and exchange traded derivatives (although EMIR applies only to OTC derivatives). The paper covers the scenario of a default of a clearing member or its clients on UCITS that enter into centrally cleared OTC derivative transactions and distinguishes between different clearing arrangements:

  • direct clearing arrangements where the UCITS is a client of the clearing member with any of individual or omnibus client segregation, other types of segregation arrangement or segregation arrangements with a non-EU central counterparty (CCP) outside the scope of EMIR; and
  • indirect clearing arrangements between the CCP, the clearing member, the client of the clearing member and the UCITS.

ESMA asks for comments by 22 October 2014. (Source: ESMA Consults on UCITS Counterparty Risk Assessments)