Financial counterparties: EMIR timely confirmation and bilateral risk mitigation

Read more about financial counterparties (FCs) looking to comply with the timely confirmation and bilateral risk mitigation obligations under EMIR. 

Timely confirmation and bilateral risk mitigation requirements implementation review results

The FCA engaged in a review to identify challenges for market compliance with the timely confirmation and bilateral risk mitigation requirements for OTC derivative contracts under EMIR. The discussions with counterparties were conducted between July and August 2013.

The findings of this review are important to FCs as they provide insight into common issues faced by their peers in complying with the timely confirmation and bilateral risk mitigation requirements. The review also highlights how those successfully complying with the requirements are achieving this compliance. The findings are summarised below:

  • Counterparties using electronic platforms for all eligible trades found that electronic confirmation helped them comply with EMIR timely confirmation timeframes. Generally these platforms reduced the time needed for legal negotiations and the number of discrepancies, and made confirmation quicker. Some counterparties reviewed their OTC derivatives activity to use electronic platforms wherever possible.
  • Due to its bespoke nature, a certain proportion of OTC derivative transactions would remain confirmed on paper. Some counterparties analysed their confirmation despatch, review and amendment process to reduce timeframes.
  • Products for which no standardised industry documentation is available posed a challenge to compliance with EMIR timely confirmation requirements. Several counterparties would welcome the industry developing standardised documentation.
  • Counterparties had started engaging with their EU and non-EU OTC derivatives counterparties on the legal and operational arrangements under which portfolios of OTC derivative contracts between them shall be reconciled, and on how to identify, record and monitor disputes on recognising or valuing OTC derivative contracts and the exchange of collateral between counterparties. They also took steps to start reporting disputes to the FCA after entry into force of the regulatory requirement. Some firms are proactively contacting their counterparties about EMIR requirements and proposing arrangements to facilitate EMIR compliance.
  • Counterparties are reviewing their internal operational processes to ensure compliance with timely confirmation and bilateral risk mitigation requirements under EMIR. Specifically counterparties are working on including intra-group trades in their timely confirmation and bilateral risk mitigation processes as required by EMIR.