The FCA has published two reviews undertaken between June and September 2013, assessing the challenges of EMIR compliance for both FCs and NFCs. The results are in the form of two “factsheets”, for NFCs the focus is on hedging definition and clearing thresholds, for FCs the review considers compliance with EMIR reporting and risk mitigation requirements.
- Hedges are generally being correctly identified and NFC’s are aware of the distinction between hedging and speculative trades.
- Those NFCs using a VaR methodology to measure aggregate risk are aware that qualitative methods to assess individual trades are also mandated.
- Clearing threshold calculations continue to be a source of difficulty. Some NFC’s remain unaware that all derivative-trading entities count towards the threshold, irrespective of domicile. Many of those who are have found it challenging to perform group-wide calculations.
- NFCs have found the bilateral risk mitigation obligations challenging, particularly in respect of trades with non-EU firms who may be unaware of EMIR.
- NFCs have begun to consider the EMIR reporting requirements and are exploring the range of options from full in-house systems to wholesale delegation.
- Electronic platforms are a good thing. Quicker confirmations and less discrepancies.
- The review acknowledged that some OTC products were currently ineligible for standardisation.
- Counterparties are working towards full compliance with portfolio reconciliation requirements and are working on including intra-group trades.
The FCA is generally to be congratulated on its recent efforts to disentangle the complex EMIR-compliance web. However the publication of these effectively fact-free factsheets serves little purpose. They give a vague sense of one’s peer group’s progress to compliance, but are neither benchmark nor warning of inevitable enforcement.