EU Commission Updates FAQs regarding EMIR Timely Confirmations
On 13 February 2013, the European Commission published an update to its FAQ document on EMIR, including a new question (number 13) and answer relating to timely confirmations.
Article 11(1) of EMIR requires financial counterparties and non-financial counterparties that enter into OTC derivative contracts not cleared by a CCP to have in place “appropriate procedures and arrangements…to measure, monitor and mitigate operational risk and counterparty credit risk”. These measures specifically include the “timely confirmation…of the terms of the relevant OTC derivative contract”.
Article 12 of the relevant EMIR Regulatory Technical Standard[1] (RTS) seems to enact hard deadlines requiring confirmation between t+1 and t+7 depending on the nature of the underlying transaction and the date on which it is executed. However, the Commission has confirmed that the requirements set out in the RTS should be read in conjunction with Article 11(1) of EMIR. In the Commission’s view they do not introduce hard deadlines but rather should be interpreted as requiring firms to establish procedures which will enable them to confirm trades within the specified deadlines.
Nonetheless, the Commission has confirmed that, where a firm has appropriate procedures and arrangements in place, but still fails to meet the confirmation deadlines, it should notify its competent authority. The competent authority should then examine the procedures and arrangements in order to determine whether the firm has made sufficient efforts to comply with its EMIR obligations.
[1] RTS on “indirect clearing arrangements, the clearing obligation, the public register, access to a trading venue, non-financial counterparties, risk mitigation techniques for OTC derivatives contracts not cleared by a CCP”