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New ISDA EMIR Counterparty Classification Tool Launched Today

On 28 October 2013, ISDA and Markit launched the EMIR Counterparty Classification Tool, a free online service via ISDA Amend. The tool facilitates compliance with certain EMIR regulatory requirements by allowing market participants to classify themselves according to the EMIR taxonomy by answering a series of questions. Most importantly, the tool attempts to address one of the key lacunas of EMIR which is that, whilst firms must inform their competent authorities and ESMA about their EMIR counterparty classification, they are under no obligation to inform their counterparties.

Those wishing to make use of the tool must register with Markit and will need a legal entity identifier (LEI). Since the LEI standard has not yet been finalized, an officially recognized Pre-LEI code can be used.

It is claimed that populating the tool will be simple and focus on the answers to three overarching questions:

  • Are you an entity out of scope of EMIR?
  • If not, what is your EMIR entity type?
  • Are you a pension scheme arrangement?

Firms must select the counterparties to whom they wish to permission classification data. Those with a large amount of data to enter, such as asset managers, can choose to do so manually or to provide a spread sheet to Markit, which will map client data into the tool. However, the tool will not aggregate details where a fund has more than one manager. Nor will it calculate whether the client is an NFC+ or NFC- or notify the FCA or related authority when a clearing threshold is breached. It is important to note that banks cannot request data from their clients via this tool.

The Counterparty Classification tool is advertised as being safe, secure and involving no legal obligations. Users should also expect additional functionality in the future. The FCA, Bafin and AFM are said to unofficially support use of the tool, although regulators are yet to gain access to the information contained within it. If successful, it will help avoid the mountain of letters which banks are currently asking their clients to sign. It will also address ongoing counterparty classification status maintenance. Of course, if the buy-side start to use this tool, they are at least morally obliged to keep it up to date. This implies some kind of administrative burden going forward. However, the truth is that it’s no more of a burden than they were already subject to, so this shouldn’t be grounds for objection.

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