EMIR REFIT – the Deadline is approaching: A decade of regulations to enhance derivates market integrity - Banking blog

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Following the 2008 global financial crisis, and the G20 decision, the European Parliament introduced the European Market Infrastructure Regulation (EMIR). Among other things, this mandated that all firms engaged in derivatives contracts in the EEA (European Economic Area) report their transactions with counterparties. The aim was to enhance transparency and identify any systemic risks associated with Over-the-Counter (OTC) derivatives trades in Europe. From the very beginning, the Swiss Financial Market has supported their EU clients, either through branches, subsidiaries or directly, with the fulfilment of these obligations.

As part of the Regulatory Fitness and Performance program, EU legislators have endorsed amendments to EMIR (EMIR Refit), which must be implemented by all entities involved in derivatives trading by April 29, 2024. This updated version seeks to bolster the robustness, completeness, and quality of reporting by enhancing the transparency, granularity, and standardization of reported data.

Focusing on Switzerland, EMIR Refit will continue to generate increased client requests to ensure compliance with their obligations.

What are EMIR REFIT’s impacts for Swiss entities?
The effects of EMIR Refit on entities headquartered in Switzerland and operating with European subsidiaries or serving European clients who delegate reports to Swiss banks, are multiple.

First, in terms of classification actions, Swiss entities must confirm their EMIR classification. Particularly, Financial Counterparties (FCs) should ascertain if they fall under the recently introduced EMIR Refit category "SFC" (formerly FC-), which relieves them from the clearing obligation. Since the thresholds for EMIR differ from those in Swiss law, this evaluation must be carried out independently from any determination under the Swiss Financial Market Infrastructure Act (FMIA), as an SFC designation under FMIA may not correspond with EMIR classification.

As for Swiss Alternative Investment Funds (AIFs) managed by Swiss Alternative Investment Fund Managers (AIFMs), they are categorized as Third Country Entity Financial Counterparties (TCE FCs), and the responsibility for reporting shifts to the AIFM.

Regarding Swiss funds engaged in transactions with EU banks, they are treated as TCE FCs. This entails that EU banks are required to impose margin requirements on over-the-counter (OTC) derivative trades. In certain cases, clearing obligations may apply if trading activities exceed specified thresholds.

Furthermore, there are additional impacts to consider in terms of reporting. Swiss subsidiaries of EU banks are not required to report under EMIR Refit. Instead, the reporting obligation falls on EU entities, who must specify non-EU subsidiaries or entities in their reports. It's important to note that EMIR Refit does not provide an exemption for intragroup transactions when the parent company is based in a third country; reporting still applies to such transactions.

Finally, given more stringent data quality requirements and oversight requirements, it is expected that clients for whom reporting has been delegated to Swiss firms will require more regular KPI and pro-active notification of issues, increasing the burden.

In which cases are you affected by EMIR Refit and should take action by April 2024?

  1. You are a Swiss entity (financial or non-financial) having a subsidiary located in an EEA country; and
  2. You trade OTC and/or ETD derivative products:
    1. On your own account from your EEA subsidiary; or
    2. For your clients through your EEA subsidiary; or
    3. With EEA clients who have delegated reporting to you.

Then, you must, among other actions:

  • Evaluate the impact of EMIR Refit on the entity or the group;
  • Review your processes, procedures and controls relating to activities subject to EMIR (e.g. Risk Mitigation Techniques and Control Framework) in order to incorporate the amendments induced by EMIR Refit;
  • Develop your reporting system and processes to reflect the changes made to the reportable fields and the information to be collected from your counterparties;
  • Align with your counterparties to ensure they are in compliance with the new rules and obligations regarding reporting of trades and avoid reports to be considered as non-paired or non-matched;
  • If not already, ensure to choose a Central Counterparty (CCP) for clearing (if required, in case thresholds are met) and a Trade Repository (TR) for reporting that are listed under ESMA, registering as a non-EU entity subject to EMIR.

Additionally, you are affected by EMIR Refit if you are:

  1. A CCP clearing OTC derivative contracts for counterparties located in an EEA country; or
  2. A TR reporting OTC derivative trades on behalf of a counterparty located in an EEA country.

Then, you must refer to the obligations that apply to your type of organization.

It is time to act : How to address these new requirements?
Efficient and thorough planning is crucial for successful EMIR REFIT updates by April 29, 2024. Deloitte's experts are ready to assist your organization with scoping, designing, and executing these requirements. Our developed approach includes gap assessments, roadmap design, and support during and after implementation. Project coordination and technical guidance are also ensured along the engagement through a PMO role and SMEs’ technical vision and knowledge.

If you'd like to learn more, feel free to reach out to us for details on EMIR REFIT and its impact on your organization.

This article has been first published here.

Key contact

RW

Ralph Wyss - Partner, Defence, Security & Justice Sector Lead, Audit & Assurance, Deloitte Switzerland

With more than 25 years of experience, Ralph is a renowned anti-money laundering and compliance expert in the Swiss market. His primary focus is on the financial services and defence sectors, but his expertise spans other industries. At Deloitte, he leads the Regulatory Risk Assurance services and the Defence, Security and Justice sector within the Government & Public Services industry. He also provides restructuring and liquidation services to banks. Ralph is a Swiss attorney-at-law, holds a PhD in law and is an officer in the Swiss army active in military intelligence.

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Pascal Martino - Partner, Advisory & Consulting, Deloitte Luxembourg

Pascal brings expertise in retail & private & commercial banking as well as in asset servicing industry. He has a track record in designing and implementing target operating models (operational, organizational and applicative) and across multiple jurisdictions. In addition, Pascal is also leading the Banking Operations Excellence initiative in Luxembourg (certified Lean Six Sigma Black Belt) and was in charge of many efficiency review projects in the retail, private banking sector as well as in the investment fund and asset management industries. Pascal Martino has 22 years of experience in Business Consulting and Advisory services and developed a wide expertise in Private and Retail Banking as well as in the Asset Servicing industry. Its areas of expertise cover the project management of large and complex strategic projects, the analysis and definition of business and corresponding operating and technical models, the analysis & definition and implementation of Business Process Outsourcing (BPO) and the review of business processes based in particular on lean / six sigma methodology. Pascal also developed an expertise on key regulatory aspects as MiFID and EMIR. Pascal’s educational background blends a financial and business management degree completed with an academic exchange in a German graduate school of management. Pascal is certified Lean Six Sigma Black Belt and is internal and external trainer for Project Management.

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Collet Laurent

Laurent Collet - Partner, Advisory & Consulting, Deloitte Luxembourg

Laurent is Partner in Strategy and Operations Services and is specialized in the Banking and Capital Markets (Market Infrastructures) Industry. He joined Deloitte in December 2011.
Laurent has a seasoned professional experience of more than 20 years in the securities business, asset management and capital markets. This expertise gained over his career path is completed by strong skills in business development, communication and management of organization. Laurent has led several strategic projects for global market infrastructures and securities services providers in the context of new business acquisition, digital and crypto assets transformation, new business design and implementation. Laurent is Chairman of Luxembourg Banking Association EMIR (Derivatives), a member of the ECB T2S (CSD) National User Group (NUG Luxembourg) and a member of the Luxembourg Securities Market Committee.

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Kevin Demeyer - Director, Strategy Regulatory & Corporate, Deloitte Luxembourg

Kevin joined Deloitte in 2015 as a manager in the Strategy and Operations service. Before joining Deloitte, Kevin acquired 9 years of experience in custody, asset servicing and collateral management at a major global custodian and triparty collateral manage, 6 years of which in a project management role. During this time he gained a deep understanding of the banking business, operational processes, IT systems and project management process. He was also involved in regulatory compliance projects covering CASS, EMIR, Dodd Frank and MiFID II. Kevin has participated in and led different projects ranging from defining target operating models, system conversions and product development. Kevin is also one of the co-ordinators of the MiFID II task force at Deloitte Luxemburg. Kevin has worked on assisting several banks and fund managers on implementing collateral management. He is a member of the ALFI working group on EMIR and co-chair of the ALFI working groups on SFTR reporting and collateral management. Kevin is also the leader of the MiFID 2 task force at Deloitte Luxembourg.Kevin holds a Master degree in Finance and Risk management from the European University College in Brussels.

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