During the first months of 2014, the MFSA performed a number of EMIR related on-site inspections to verify the extent of implementation of the EMIR regulation by the industry. Following these inspections, the markets team within the Securities and Markets Supervision Unit monitored the results of the issues raised during these visits and tracked their resolution.

The four commonly identified issues, along with a brief description of the recommended action in each case, follow. These recommendations are intended to support those falling within the scope of this regulation in their efforts to ensure adherence with a number of regulatory requirements.

I. Procedures

Some undertakings were unable to provide a set of written procedures which establish the processes carried out by the respective undertaking in order to be compliant with EMIR. It is recommended that all those undertakings entering into derivative contracts, or which intend to do so, should have a set of written procedures in place to ensure the undertakings' compliance with EMIR.

II. Delegation

Under EMIR it is possible to delegate certain duties to third-party entities, such as for instance, the reporting obligation as set out in Article 9 of EMIR. It is important to note that all the necessary documentation should be in place when delegating such duties. The Authority expects undertakings to have in place complete and finalised documentation of any such agreements, which would need to be made available during on-site inspections.

III. Risk Mitigation

Article 11 of EMIR specifies that counterparties should have appropriate arrangements in place to mitigate risks when entering into OTC derivative contracts which are not cleared by a CCP. When conducting on-site inspections the Authority is therefore expecting to be provided with a copy of agreements entered into between counterparties which cover all risk mitigation requirements explained under EMIR.

Certain undertakings explained that they made use of ISDA agreements to meet the risk mitigation technique requirements. In this regard, undertakings should have in place either the ISDA 2013 EMIR Port Rec, Dispute Res and Disclosure Protocol (in this case the relevant counterparties should also be signatory to such a protocol); or the ISDA 2013 EMIR Portfolio Rec, Dispute Res and Disclosure Standard Amendment Agreement in case where an ISDA Master agreement is in place.

IV. Clearing

On the 18th March 2014, ESMA authorised the first CCP to offer its services and activities in the Union, and consequently was required to draft a regulatory technical standard ('RTS'). This draft RTS is awaiting the endorsement of the European Commission and thereafter the no-objection by the European Parliament and the Council.

Those undertakings entering into OTC derivative contracts which are required to be cleared through a CCP are urged to have in place the necessary set-up to clear through a CCP once the clearing obligation comes into effect. A list of authorised CCPs and the classes of financial instruments covered by the authorisation of these CCPs can be found by following this link http://goo.gl/V3DMcF, whilst the Public Register for the Clearing Obligation under EMIR may be accessed via this link http://goo.gl/7Sj7sR.

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.