We reported in our Newsletter of March 2014 that on February 14th 2014, ESMA, in the context of the European Market Infrastructure Regulation (EMIR), sent a letter to the European Commission (Commission) asking for clarifications on the classification of foreign currency (FX) financial instruments.
Under Directive 2004/39/EC on Markets in Financial Instruments (MiFID) a contract considered as a financial instrument may give rise to authorisations and other obligations. Whether or not an FX contract can be defined as a financial instrument has therefore important implications as regards authorisation requirements under MiFID, but also as regards the scope of application of other EU financial regulations including EMIR, the Capital Requirement Directive and Regulation (CRD4) and the Market Abuse Regulation since they all cross-refer to the definition of financial instruments under MiFID.
Recognising a lack of harmonisation between the EU Member States, the Commission, on April 11th 2014, published a consultation paper (Consultation) with the narrow scope to define FX financial instruments and determine the boundaries between an FX financial instrument and a spot FX contract.
The purpose of the Consultation is to assist the Commission in preparing a formal proposal to ensure clear, adequate and consistent application of the relevant financial regulation across the EU.
The Consultation included 10 questions ranging from the use of FX, settlement periods, developments in the FX market, risks, transitional periods and interaction with regimes outside of the EU.
The Consultation closed on May 9th 2014. The Commission explained that the Consultation took less than 12 weeks because this topic is a technical issue which, for reasons of legal certainty and need for consistent application of financial regulation across the EU, requires a swift regulatory response.
Although no timeline has been indicated it is expected that the proposal on this topic will soon be made available as the demand for a regulatory response is high.
For the full text of the Consultation, please see the following link:
http://ec.europa.eu/internal_market/consultations/2014/foreign-exchange/index_en.htm
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.
