EMIR: Four Important Letters, but not a Sealed Book

EMIR has far-reaching implications for corporate treasury functions, including their strategy, structure, processes, employees and IT.  Companies have three main obligations:

  • The clearing of derivatives is mandatory if the gross nominal value of derivatives (excluding derivatives for hedging purposes) exceeds the respective clearing thresholds of €1bn or €3bn for one of the five derivative categories at group level. Even when the company lies below this threshold, it has to provide evidence that the clearing is not mandatory for the company.
  • Companies that use derivatives are obliged to implement appropriate processes to manage operational and credit risks. They have to examine the adequacy of these processes individually, with respect to the size, structure and complexity of the business operation. It has been mandatory since, respectively, mid-March and September this year to implement the risk-mitigation techniques defined by EMIR (e.g. implementation of formal processes for transaction confirmations, along with regular portfolio reconciliation and compression). These risk-mitigation techniques have to be embedded in a comprehensive risk management system for managing credit and operational risks.
  • Companies are required to provide complex reports for all new, modified or early terminated internal and external derivatives contracts to a trade repository. The European Securities and Markets Authorities (ESMA) has approved the registration of four trade repositories: the Depository Trust & Clearing Corporation (DTCC ) and Unavista, both in the UK; Krajowy Depozyt Papierów Warto?ciowych  (KPDW) in Poland and Regis-TR in Luxembourg. The reporting obligation begins from 12 February 2014 and will apply to all derivative asset classes (interest rates, foreign exchange (FX), equity, credit and commodities) and for both OTC and exchange-traded derivatives. Companies have to report derivative contracts entered into before the reporting start date – i.e. derivative transactions outstanding on the date of entry into force of EMIR (16 August 2012) or entered into after that date (so-called ‘backloading’). Generally, the reporting can be delegated to a third party, but the corporation itself remains responsible for the reporting to be performed correctly, in its entirety and on time.

Oversight of the implementation of EMIR and ensuring that entities comply with it is the responsibility of national (supervisory) authorities in the respective countries. Those authorities have to implement the appropriate measures and set out the sanctions in case of a breach of the obligations. In Germany, for example, the EMIR Implementation Act (Ausführungsgesetz) and the Securities Trading Act (§20 Wertpapier-handelsgesetz) require medium and large corporations, as well as limited liability companies, to be certified yearly by an accounting firm to confirm that they comply with all EMIR requirements. The German auditing obligation applies as soon as a company has concluded more than 100 external OTC derivative contracts within one fiscal year, or if the total nominal volume of theses derivatives exceeds €100m.

PwC adopts a three step-approach to support businesses in implementing the EMIR requirements:

  • An impact analysis assessing which EMIR regulations apply and the impact on treasury functions.
  • A report that outlines the actions needed and proposals for solutions, so that management knows exactly what steps they need to take to comply.
  • Support for the businesses when implementing or modifying their strategies, structures, processes and IT during the transition period. If companies are subject to the audit requirement, this will include support as auditors and performing a test audit to see whether management needs to take any additional action.


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