Emir Can Still Be Reshaped, Industry Told

Terry Flanagan

Despite the often turbulent ride through the corridors of power in Brussels of the new derivatives regulation in Europe, market participants in the region are still being urged that they can reshape the new rules despite them having already entered the statute books.

The European Market Infrastructure Regulation, better known by the acronym of Emir, is the European Union’s attempt at meeting a global agreement on OTC derivatives championed by the G20 group of nations to reducing systemic risk in financial markets following the financial crisis.

The U.S., with its similar Dodd-Frank Act reforms, is slightly ahead of Europe in terms of adoption, although many rules on both sides of the Atlantic—home to the world’s main derivatives markets—have yet to be fully formalized.

“Emir has faced a bumpy ride,” said Collette O’Gorman, a manager at Baringa Partners, a consultancy, in a recent blog.

The latest of these spats in Brussels came last month when the European parliament revealed concerns over elements of the implementation of Emir, notably around its impact on non-financial firms, although it is thought that the European Commission lent on parliament to secure the passage of the much-delayed document. Similar issues have haunted the Dodd-Frank process on the other side of the Atlantic.

“The implementation experiences from both Dodd-Frank and Emir show the passing of legislation is only the start of the road of regulatory reform,” said O’Gorman.

“The development of regulatory rules and technical standards can introduce lengthy periods of drafting, consultation, final drafting and then approval before the market participants can actively implement with certainty. The greater the reforms, the longer change takes and the more robust objections can be.”

O’Gorman added: “Now is the key time for market participants to be assessing and understanding the impact on their business and operations, especially as there is still an opportunity with European reforms to influence the shape of implementation by the European Securities and Markets Authority [the pan-European regulator].”

Firms are being urged to stay ahead of the new derivatives rules—as well as an avalanche of other financial services regulation that is set to descend on Europe such as MiFID II, MAD II and the AIFMD—as a policy of burying your head in the sand is not likely to bear fruit.

“Financial institutions are facing enormous challenges brought about by the Emir and Dodd-Frank regulatory schemes and rapidly evolving regulatory structure in Europe and the U.S.,” said James Malgieri, executive vice-president, global collateral services at custody bank BNY Mellon.

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