FCA supervisory priorities arising from EMIR - Financial Conduct Authority

FCA supervisory priorities arising from EMIR

Last Modified: 17/12/2014
The first of a range of significant new obligations on financial and non-financial counterparties entering into derivative contracts came into force in March and September 2013, with the rest following in 2014 and 2015 onwards.

These arise from the implementation of the EU Regulation on OTC derivatives, central counterparties and trade repositories (EMIR). Find out what this means in this statement.

What do these changes mean for the FCA?

We have reflected, and will continue to reflect, these changes, as necessary, in our strategic supervisory and surveillance work and future supervision of regulated firms.

Given the volume of change, and consistent with our risk-based approach in assessing firms' compliance with the new requirements, we need to set clear priorities. We believe it is important to publicise our approach so that firms are aware of our priority areas of attention while they are progressing their implementation projects and beyond.

During 2015, areas of focus will include:

  • counterparties complying with the requirements for trade reporting, including having established connectivity or appropriate delegated reporting arrangements, internal systems to ensure the accuracy of reports, and having both acquired  Legal Entity Identifiers and ensured that they are renewed annually;
  • non-financial firms assessing and monitoring their status against the clearing threshold in line with EMIR;
  • clearing members complying with the EMIR Article 39 requirements around segregation, account offering and disclosure of risks and costs associated with the clearing services they offer to clients; and
  • readiness of financial firms and non-financials above the clearing threshold for the clearing obligation and for collateralisation of non-centrally cleared OTC derivatives.

Our supervisory approach

We will continue to focus on targeted implementation work and, from 2015 onwards, will start gradually integrating EMIR regulatory requirements into business-as-usual supervision. Our supervisory approach will be risk based, taking into account the position of particular firms and the markets in which they operate.

What we’ve been doing since implementation

Our implementation team continues to be in contact with a number of firms about their preparations to implement the EMIR changes. For major derivatives market participants, this has involved dialogue on planning and progress. We reached, and continue to reach, other firms through seminars, email updates and other communications.

A number of EMIR obligations have already been in force since 2013/2014, and new ones will continue to come into force at various points from 2015 onwards. In respect of each EMIR obligation, our approach has been, and continues to be, to:

  • confirm with major derivative market participants and relevant industry bodies the delivery of implementation plans and discuss any issues arising
  • follow-up on any issues of concern, with individual firms or on an industry-wide basis and
  • sample across a range of firms for an indication of the level of compliance and any issues to be addressed.

We then gradually integrate supervision of EMIR obligations into our Firm Systematic Framework, which is outlined in Section 2.5 of the FCA Business Plan 2013/14, and follow our general approach to supervision, as outlined in Section 1 of the FCA Business Plan 2014/2015.

In 2015, our supervision of EMIR requirements will focus on the reporting of derivative contracts to trade repositories, clearing members’ Article 39 obligations in relation to the clearing services they offer to clients, and readiness of relevant market participants for the clearing obligation and the bilateral margin requirements for non-cleared trades.

In relation to the new EMIR obligations coming into force from 2015 onwards, firms should have robust and specific plans in place to comply with them as they come into force. If there is a reason why full compliance cannot be achieved by the relevant date in specific circumstances, a firm should prioritise having a detailed and realistic plan to achieve compliance within the shortest timeframe possible. However, this does not prejudge our approach to any instances of non-compliance.

Supervisory approach to risk mitigation requirements for non-cleared trades relating to portfolio reconciliation, dispute resolution and compression

In line with our supervisory approach, the FCA expected firms which were unable to comply with risk mitigation requirements for non-cleared trades relating to portfolio reconciliation, dispute resolution and compression to have a detailed and realistic plan to achieve compliance within the shortest time-frame possible. The FCA expects that such plans were completed and implemented by 30 April 2014 and that firms are able to demonstrate compliance since that date.

For more information on EMIR, please see our EMIR Homepage.