Ireland: Central Bank Of Ireland Updates FAQ On Application Of EMIR To FX Forwards

1. Updated FAQ

In August 2014 the Central Bank of Ireland (the "CBI") updated its "Frequently Asked Questions"(1) on the application of the reporting obligation under EMIR to state that, as a temporary measure:

(a) all FX transactions with settlement before or on the relevant spot date (generally T+2) are not required to be reported;

(b) all FX transactions with settlement beyond seven days are required to be reported;

(c) all FX transactions between an Irish counterparty and a non-Irish counterparty with settlement between the spot date and seven days (inclusive) are only required to be reported by the Irish counterparty if local laws, rules or guidance in the jurisdiction of the non-Irish counterparty require the non-Irish counterparty to report.  The Irish counterparty should rely on documentation from the non-Irish counterparty as to whether it is required to report; and

(d) all FX transactions between two Irish counterparties with settlement between the spot date and seven days (inclusive) are not required to be reported.

In respect of (d) above, the CBI recommends that counterparties that have the capacity to report such trades do report them (notwithstanding that there is no obligation to report), and it further recommends that counterparties build a capacity to report such trades in the future.

While this updated guidance is to be welcomed, it does raise a number of fresh questions.  Set against a background of divergent regulatory approaches throughout Europe, and the European Commission and the European Securities and Markets Authority ("ESMA") being unable to provide any further guidance, it appears that the precise limits of the application of EMIR to FX trades are still yet to be settled.

2. Regulatory developments so far

The CBI's previous guidance, issued in February 2014, had stated that generally any FX trade settling greater than T+2 was to be considered an FX forward.  The previous version of the FAQ stated that all FX forwards were to be considered within the scope of EMIR regardless of:

(i) their actual settlement date; and

(ii) whether they are concluded for "commercial" (as opposed to speculative or investment) purposes.

The previous guidance was inconsistent with guidance issued by a number of other European regulators such as the UK's Financial Services Authority and Luxembourg's Commission de Surveillance du Secteur Financier.

In light of the conflicting national guidance ESMA wrote to the European Commission on 14 February 2014 (2) seeking clarification on what constituted a "derivative" within the scope of EMIR.  ESMA stated that, in the absence of clarification from the European Commission, it understood that national competent authorities would not apply EMIR to "FX forwards with a settlement date up to 7 days, FX forwards concluded for commercial purposes, and physically settled commodity forwards..."  Notwithstanding ESMA's letter, the CBI did not alter its guidance.

Following ESMA's letter, the European Commission issued a consultation document on FX financial instruments(3) in April 2014.  The consultation document was intended to assist the European Commission in developing a legislative proposal to define the scope of EMIR.  However, on 23 July 2014 the European Commission wrote to ESMA(4) noting that its legal power to adopt implementing legislation that could clarify the definition of FX financial instruments lapsed on 1 December 2012.  Presumably such lack of authority had previously been overlooked when the European Commission commenced its consultation.

In its 23 July 2014 letter, the European Commission noted that the definition of financial instrument is due to be revised by the implementation of MIFID 2 in 2017, and that ESMA should carefully consider "whether the current approach by Member States achieves a sufficiently harmonised application of the EMIR reporting obligation in the period before the application of MIFID 2 or whether further measures by ESMA, eg guidelines, are necessary", bearing in mind that any guidelines adopted now "may need to be changed again in 2017 if these measures are not fully aligned with the future MIFID 2 implementing measures".  This appears to indicate that the European Commission feels that no further guidelines should be issued before the implementation of MIFID 2.

Following the European Commission's decision not to clarify the definition of what constitutes a "derivative", the CBI issued its latest guidance.  However, the CBI has indicated that this guidance is a "temporary measure".  The CBI has advised that it may revise its guidance again in the future, or its guidance may be superseded by developments at EU level. 

3. Continued uncertainty

The CBI's updated guidance does not make any reference to the "commercial purpose" exemption (or indeed the treatment of physically settled commodity forwards).  The "commercial purpose" exemption was expressly recognised in the guidance of the FSA and the CSSF, and was mentioned in ESMA's letter of 14 February 2014.  In the absence of any additional guidance from the CBI or ESMA, it appears that the CBI does not view FX forwards concluded for "commercial purposes" as being exempt from EMIR.

It is noteworthy that the CBI's updated guidance distinguishes between otherwise identical contracts on the basis of where the counterparty is located.  It states that if a contract is considered to be within the scope of the EMIR reporting obligation according to the "local laws, rules or guidance" of the counterparty's jurisdiction, then it should be reported by the Irish counterparty.  As the EMIR reporting obligation only applies to "derivatives" within the scope of EMIR, this suggests that the Irish interpretation of what constitutes a "derivative" will vary depending on the "local laws, rules or guidance" of the counterparty's jurisdiction.  This could result in an Irish counterparty having to treat two otherwise identical trades as subject to different regulatory regimes, by reference to guidance issued by a counterparty's regulator.

1. Central Bank of Ireland FAQs 
2. Letter to Commissioner Barnier
3. Consultation document on FX Financial Instruments 
4. European Commission letter to ESMA Chair

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 Mondaq.com.

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

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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