Spring Lunch Series Recap: EMIR

Spring Lunch Series Recap: EMIR

Spring Lunch Series Recap: EMIR

By George Ralph, Managing Director, RFA UK

Last month, we hosted our second annual spring lunch series at Claridge’s in Mayfair, London. This year’s series was focused on several of the regulations currently affecting the European financial services sector. Some of the regulations, such as MiFID II, are about to be introduced, whilst others, such as AIFMD, have been around for some time, but have continued to cause challenges for hedge fund managers. Over the next several blog posts, I will be delving into each regulation and what it means for your business. Today, we are back for our third installment of our spring lunch series recap to discuss the European Market Infrastructure Regulation, also known as EMIR.

EMIR, also known as Dodd-Frank in the US, serves to increase stability of the OTC (over the counter) derivatives market and was first introduced in late 2012. The regulation follows the G20 commitment to clear all standardised OTC derivative contracts where appropriate, through central counter parties, and according to lunch series attendees, is already presenting a significant EMIRadministrative burden to hedge funds. The regulation enacts central organisational, conduct of business standards for central counter party clearing houses and trade repositories in order to enhance transparency and reduce the risks that are associated with the derivatives market. EMIR encompasses five core areas, which will continue to post challenges for hedge funds over the long term:

  • Reporting obligation for OTC derivatives
  • Clearing obligation for eligible OTC derivatives
  • Measures to reduce counter party credit risk and operational risk for bilaterally margined OTC derivatives
  • Common rules for central counter parties (CCPs) and for trade repositories
  • Rules on the establishment of interoperability between CCPs

EMIR does not require firms to undergo technological change, but it will still be important for hedge funds to streamline as many back and middle office processes as possible in order to conduct business efficiently and stay competitive. Funds will have to comply with enhanced reporting of all contracts entered in trade repositories, and will need to implement enhanced risk management standards and operational processes. The full regulation is set to apply for the largest institutions in September 2016, and in March 2017 for all other applicable firms, so it essential to begin making compliance preparations as soon as possible.

Be sure to catch next week’s installment on an older, but continually challenging regulation- Basel III.