Canada: Deadline Approaches For Compliance With European Derivatives Risk Mitigation Measures

Last Updated: April 30 2014
Article by Gordon F. Peery

Most Read Contributor in Canada, September 2016

Canadian firms (among others) will continue to be asked by European counterparties in the global over-the-counter derivatives market to provide information to enable the aforementioned counterparties to comply with the European Market Infrastructure Regulation (EMIR) under Regulation (EU) No. 648/2012 of the European Parliament.

By April 30, 2014, any entity under the jurisdiction of the British regulator Financial Conduct Authority (FCA) is required to implement risk mitigation measures relating to OTC derivatives and other instruments covered by EMIR.


A wide range of compliance obligations affecting parties trading OTC derivatives with European counterparties went into effect this year, including, for example, OTC reporting requirements that came into force on February 12, 2014. Risk mitigation requirements in Europe first went into effect on September 13, 2013 and a leading regulator in Europe, the U.K. Financial Conduct Authority (FCA), issued in March 2014 an advisory that it expects EMIR risk mitigation measures to be in place by no later than April 30, 2014. The FCA publicly stated that firms that had not already implemented the risk mitigation requirements of EMIR should prepare a "detailed and realistic" compliance plan "within the shortest time-frame possible" and that "The FCA expects that such plans will be completed and implemented by 30 April 2014 and that firms will be able to demonstrate compliance after that date".


European and U.S. derivatives laws currently require parties on both sides of an OTC derivative trade to implement internal processes and procedures that are designed to mitigate the risk of default. Eventually many or all regulators of derivatives will require these or similar measures. Regulators in the leading markets were concerned in 2008-09 that the risk of default of market participants threatened the health of the financial markets as a whole. As a result, regulators have more recently imposed new requirements that apply either directly or indirectly depending upon the jurisdiction in which an entity is organized and operates (and the counterparties with whom it trades OTC derivatives).


The European Securities and Markets Authority (ESMA) clarified in published guidance that EMIR Risk Mitigation applies to non-EU entities classified as third country entities. It stated, "Article 11 of EMIR, which provides the basis of these [Risk Mitigation] requirements, applies wherever at least

one counterparty is established within the EU. Therefore where an EU counterparty is transacting with a third country entity, the EU counterparty would be required to ensure that the requirements for portfolio reconciliation, dispute resolution, timely confirmation and portfolio compression are met for the relevant portfolio and/or transactions even though the third country entity would not itself be subject to EMIR. However, if the third country entity is established in a jurisdiction for which the Commission has adopted an implementing act under Article 13 of EMIR, the counterparties could comply with equivalent rules in the third country."


Portfolio reconciliation is a post execution process that involves sending or receiving data from each counterparty and conferring by phone, email or otherwise to ensure that both sides to a derivative are in agreement on trade details, events that take place during the pendency of a trade and valuation and collateral issues. If EMIR portfolio reconciliation obligations apply, your firm has to select one of two options and adopt that option in internal policies and procedures:

Option A: Bilateral reconciliation (your firm and its counterparty exchange portfolio data)

Option B: Unilateral reconciliation (only your firm's counterparty sends its portfolio data to you)

Many European counterparties have developed a dedicated web portal for unilateral reconciliation ("one-way delivery of portfolio data") because many of their counterparties have selected Option B. In this case, the European counterparty will send a designated person an email two weeks prior to the reconciliation date informing that person that the portfolio will be made accessible on a web portal on the date of the reconciliation. You will then be asked to approve the data or inform the counterparty of any issues with respect to the data (differences in internal valuations and so forth).

The key point is that your operations and legal teams will have, following the date on which data is made accessible, generally only five (5) business days (that are business days for both parties to the derivative), or a shorter period, if agreed, to object to the data. If no objection is made, then the data provided by the counterparty will be deemed the "correct" data and no objections can be made.


EMIR also requires that European counterparties (and their counterparties) implement a dispute resolution process. The reason that regulators require these processes is that, in the past, disputes have resulted in massive losses that have destabilized the system, and regulators were not aware of those losses until massive damage was done to the system. Today, regulators are requiring parties to implement internal policies and procedures to meet and confer and to identify and resolve disputes. If those disputes exceed a threshold in the aggregate, then the parties are to report those disputes to the applicable regulator. Such dispute resolution process should apply to transactions and collateral margin calls.


In addition to the above obligations, counterparties are required to assess the possibility of a portfolio compression with certain counterparties. If these obligations apply, it is recommended that your firm have internal tracking processes in place to ensure that a compliance professional is contacted if this threshold is exceeded.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.