EMIR Refit, i.e. Regulation (EU) 2019/834 which amends EMIR Regulation (EU) 648/2012, became effective on 17 June 2019.
Amongst the newly introduced changes, the following affect UCITS and AIFs1 and their managers.
- 1. EMIR Refit amends the definition of financial counterparty ("FC") with respect to AIFs. As a consequence, AIFs managed by a non-EU AIFM2 now also qualify as FCs3.
- 2. Clearing Obligation: Since 17 June
2019, "Category 3" counterparties, which include most
UCITS and AIFs, became subject to the clearing obligation. EMIR
Refit however, introduces a new category of "small financial
counterparties" ("Small FCs") that
are exempt from the clearing obligation when they do not exceed the
following clearing thresholds ("Clearing
Thresholds") for their transactions in OTC
- - EUR 1 billion gross notional value for OTC credit derivatives;
- - EUR 1 billion gross notional value for OTC equity derivatives;
- - EUR 3 billion gross notional value for OTC interest rate derivatives;
- - EUR 3 billion gross notional value for OTC foreign exchange derivatives;
- - EUR 3 billion gross notional value for OTC commodity derivatives and other OTC derivatives.
- The calculation must be done at group
level, except for UCITS and AIFs for which the positions are
calculated at the level of the fund (or sub-funds)4. UCITS management companies which
manage more than one UCITS, and AIFMs which manage more than one
AIF must, however, be able to demonstrate to their respective
national competent authorities that the calculation of positions at
the fund level does not lead to:
- - a systematic underestimation of the positions of any of the funds they manage or the positions of the manager; and
- - a circumvention of the clearing obligation.
- 3. In order to benefit from this exemption, FCs and Small FCs must, every 12 months (starting on the day EMIR Refit entered into force, i.e. 17 June 2019), calculate their aggregate month-end average position for the previous 12 months.
- If they choose not to calculate it, or if they exceed the Clearing Thresholds, they must notify it to ESMA and the CSSF, and the clearing obligation will start applying to their OTC derivative contracts (pertaining to a class of OTC derivatives which is subject to the clearing obligation) entered into or novated more than 4 months following such notification.
- 4. In Luxembourg, in order to facilitate the notification process, the CSSF launched on 27 June 2019 an electronic platform allowing FCs, Small FCs and non-FCs to notify that they have exceeded (or have ceased to exceed) the Clearing Thresholds or that they do not perform the calculation of these thresholds. The platform is available on the CSSF website.
- 5. Clarification of the reporting responsibility and liability regime for AIFMs and UCITS management companies: EMIR Refit expressly provides that AIFMs and UCITS management companies are responsible and legally liable for the reporting of OTC derivatives of the UCITS and AIFs that they manage.
1. "AIFs" refers to Alternative Investment Funds.
2. "AIFM" refers to Alternative Investment Fund Manager.
3. AIFs and UCITS serving one or more employee share purchase plans and AIFs qualifying as securitisation special purpose entities (as defined in the AIFM Directive 2011/61/EU) are, however, excluded from the definition of FC.
4. It is our understanding that in the case of an umbrella fund, the calculation of the positions will have to be done at the level of the sub-funds.
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.