On 13 June 2022, the European Supervisory Authorities (the “ESAs”) published a final report (see here) with draft regulatory technical standards (“RTS”) that would extend by three years the current time-limited margin exemption (which expires 30 June 2022) for intragroup contracts where one counterparty is established in a third country and one in the EU. The purpose of the extension is to accommodate the ongoing assessment of third-country equivalence and allow for a review of the intragroup exemptions framework under the scheduled upcoming review of EMIR1.

In expressing their support for addressing the intragroup regime in the upcoming EMIR review, the ESAs’ report reiterates a view expressed by the European Securities and Markets Authority (“ESMA”) earlier this year, in its high-level response to the European Commission (“EC”) consultation on a targeted review of EMIR with respect to the EU central clearing framework (see here), that certain additional conditions might be imposed on the availability of the intragroup exemption including that:

  • euro and EU currency risks be managed by a group entity in the EEA, with the ESAs referring to this as being “to prevent circumvention risk via certain booking practices, e.g. back to back trades to essentially maintain everything in a third-country”; and
  • the third country in which the group entity is established/authorised being neither considered by the EU institutions as having strategic deficiencies in its national anti-money laundering and counter financing of terrorism regime that poses significant threats to the EU financial system, nor subject to economic sanctions issued by the EU institutions.

The ESAs’s report also acknowledges the difficulties caused by the equivalence condition in relation to the exemption from CVA for intragroup transactions under the Capital Requirements Regulation and suggests that this might also be considered as part of the upcoming EMIR review.

ESMA also published a final report on 13 June 2022 (see here) incorporating new draft RTS to make a similar amendment to the existing three Commission Delegated Regulations on the clearing obligation under EMIR2 with respect to the equivalent time-limited intragroup clearing exemption, in which it expresses similar support for addressing this in the upcoming EMIR Review and the possibility of imposing conditions to availability of this exemption of the type referred to in the ESA’s report with respect to the intragroup margin exemption.

The draft RTS included in these reports have been submitted to the EC for endorsement, in the form of a Commission Delegated Regulation. Following their endorsement by the EC, they will be subject to non-objection by the European Parliament and the Council and, assuming no objection, each will enter into force on the day following that of its publication in the Official Journal of the European Union. Given the likely time-frame for completion of this process, the ESAs have published the usual “regulatory forbearance” statement (see here) providing clarification on the position with respect to the subject matter of both draft RTS pending such completion:

“The ESAs are mindful that the approval process for the aforementioned RTS may take some time. Therefore, from 1 July 2022 and until the end of the approval process of these RTS, the ESAs expect competent authorities not to prioritise their supervisory actions with respect to the related requirements applicable to intragroup transactions and to generally apply their riskbased supervisory powers in their day-to-day supervision of applicable legislation in this area in a proportionate manner.”