April 2024 saw two key EMIR-related developments: material reporting changes took effect on 29 April 2024 (read our insights here) and the European Parliament formally approved EMIR 3.0 following political agreement in February 2024. Formal approval by the EU Council is likely to follow in Q3 2024, with EMIR 3.0 being published in the Official Journal shortly afterwards. Most of EMIR 3.0 will come into force straight away (limited provisions will be contingent on the publication of regulatory technical standards (RTS) by ESMA).
Under EMIR 3.0, FCs and NFCs that are subject to the clearing obligation and that exceed the clearing threshold in respect of any of a list of specific categories of derivative contracts (currently interest rate derivatives denominated in euro and Polish zloty, and short-term interest rate derivatives denominated in euro) or in aggregate across all of those categories will have to have an active account at an EU CCP through which they will need to clear a representative number of trades in those categories of derivatives.
In-scope FCs and NFCs will need to set up an active account within 6 months of becoming subject to that obligation. Certain operational requirements will apply: the account must be permanently functional underpinned by the necessary legal documents, IT connectivity and internal processes; the counterparty must be operationally able to use the account (even on short notice) for large volumes of in-scope contracts; and all new trades in in-scope derivative contracts must be capable of being cleared through that account at all times. Further detail will be included in RTS to be developed by ESMA. Compliance with the operational requirements must be stress-tested annually. However, in-scope counterparties that clear at least 85% of their in-scope derivative contracts through an active account will be exempt from the operational requirements.
There will also be a representativeness obligation – in-scope counterparties (save for counterparties with a notional amount outstanding cleared of less than €6 billion) will be required to clear, through the active account, trades which are representative of the in-scope derivative contracts. The provision of client clearing services is exempt from this requirement.
For each class of in-scope derivatives contracts, compliance with the representativeness obligation will be assessed based on subcategories. In turn, the number of subcategories will be based on the combination of different maturities and trade sizes. Counterparties will be required to clear, on an annual average basis, at least 5 trades in each of the most relevant subcategories per class of contracts and per reference period. A scaled-down requirement will apply to EU pension scheme arrangements who will only be required to clear 1 trade rather than 5 in the relevant subcategories per reference period. ESMA will set the number of subcategories per class (no more than 5) and will also set the reference period (at least 6 months for counterparties with a notional clearing volume outstanding of less than €100 billion in in-scope derivatives, and at least 1 month for counterparties above that threshold).
Counterparties subject to the active account requirement will have to report information to their national competent authority every 6 months. Where the counterparty is subject to the operational requirements outlined above, it will also need to demonstrate (as part of that reporting) that those requirements have been met.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.