On October 31, the European Securities and Markets Authority (ESMA) published a statement clarifying firms’ clearing and trading obligations in light of current derogations and phase-in periods ending on December 21, allowing for regulatory forbearance.

ESMA explains that, under the European Market Infrastructure Regulation (EMIR), both the current derogation from the clearing obligation for certain intragroup transactions concluded with a third-country group entity and the phase-in for non-financial counterparties (NFCs) in Category 4 (“NFCs+), expire on December 21, for the interest rate derivative classes denominated in the G4 currencies subject to the clearing obligation.

In relation to the derogation, ESMA drafted amendments to Commission Delegated Regulations on the clearing obligation to extend the derogation expiration to December 21, 2020. Proposals to amend EMIR (EMIR Refit) envision that NFCs+ would only be subject to the clearing obligation in the asset class or asset classes where their level of activity is above the clearing threshold (for more information on the EMIR Refit, see the June 15 edition of the Corporate & Financial Weekly Digest).

However, there is a risk that the above measures will not have gone into effect before December 21. This would mean that affected counterparties would need to have clearing arrangements in place and start clearing transactions, before they are once again no longer required to do so after the amendments enter into force.

ESMA also explains that because financial counterparties and NFCs that benefit from the derogation from the EMIR clearing obligation are also exempt from the trading obligation under the Markets in Financial Instruments Regulation, such counterparties would be subject to the trading obligation until the above measures enter into force.

Given such difficulties, ESMA expects competent authorities not to prioritize their supervisory actions towards affected entities and to apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in a proportionate way.

The announcement is available here.