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Setting the Stage for Regulatory Change in 2015

By Joe Dunphy
January 21, 2015, Finextra

Financial institutions have emerged from the rigorous regulatory and data demands of 2014 a little battle weary, suffering a few scrapes and scars, but otherwise unscathed. On a whole, 2014 will be remembered as the year when regulators started to flex their muscles, levying a record number of fines and promising to become more involved at an earlier stage, making many financial institutions finally sit up and take notice.   

2015 is being hailed by many commentators as the turning point for financial regulation. However, looking at the regulatory roadmap for the year ahead, 2015 may actually offer financial institutions a well-needed respite from regulatory implementation. Don’t get us wrong – there are plenty of regulatory requirements to be getting busy with, but it appears that a lot of the execution comes in 2016 and beyond. Therefore, in 2015, financial institutions will have the opportunity to set the stage and make the necessary preparation to help them meet the regulatory demands facing them over the coming years. Some of the topics that we feel will garner more attention this year include:

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Europe and Hong Kong Cut Clearing House Deal

By Cian Burke
January 19, 2015, FOW

Agreement outlines tools ESMA can use to monitor Hong Kong clearing houses.

The European Securities and Markets Authority (ESMA) and the Hong Kong Securities and Futures Commissions (SFC) are set to enhance cooperation on the monitoring of Hong Kong's qualified central clearing parties (QCCPs) continued compliance under EMIR. 

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APG, PGGM Expecting Extension for Pension Funds' EMIR Exemption

By Maarten Van Wijk
January 19, 2015, Investment & Pensions Europe

The European Commission is likely to extend pension funds’ exemption from the European Market Infrastructure Regulation (EMIR) – which aims to increase stability in the OTC derivatives market – to 2017, according to asset managers APG and PGGM. 

Together with the Dutch Pensions Federation, APG and PGGM – asset managers for the €334bn civil service scheme ABP and €156bn healthcare scheme PFZW, respectively – have been the chief advocates for the Dutch pensions industry in Brussels calling for the postponement or adjustment of EMIR. 

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Derivs Reporting to Converge Under Multiple EU Regimes

By Hazel Sheffield
January 15, 2015, GlobalCapital

The way that firms report trade and transaction data under the European Market Infrastructure Regulation and the Markets in Financial Instruments Directive could coverage before the implementation of MiFID II in January 2017, according to market participants.

Paul Gibson, business consultant at Sapient, told GlobalCapital that he expects trade and transaction reporting under the two different regulations to harmonise in the future, streamlining the reporting process. “Under MiFID II the lines start to blur a bit because the products become more similar especially in the [over­the­counter] world. We’re potentially seeing some of the trade repositories looking at registration as [Authorised Reporting Mechanisms]. For some of the larger trade repositories that have that data, they don’t want to report it to a new entity,” Gibson said.

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Third Country End Users Face Clearing Challenges

By Hazel Sheffield
January 15, 2015, GlobalCapital

Peter Green, partner at Morrison & Foerster in London, said that in 2014, the firm had seen a flurry of queries relating to EMIR reporting requirements for exchange ­traded and over­the counter derivatives, but that clearing was still a concern for some third ­countries. “Once the clearing obligations kick­in we will expect another flurry of activity. In particular those that have the most concerns are end users in the US and Asia who enter into hedging and other arrangements with EU banks and are being asked to sign the various protocols and other documents to ensure EMIR compliance as well as guidance on what it all means,” Green said.

He noted that the issue of mutual recognition between clearing houses in the EU and the US is a particular concern. The European Commission granted equivalence to clearing regimes in Singapore, Japan, Hong Kong and Australia on October 30, 2014, but equivalence with the US is proving elusive.

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EU Regulatory Agenda: Into 2015

December 23, 2014, Lexology.com

2014 was an active year for financial regulation in the EU with a push to finalize much of the outstanding primary legislation on the regulatory reform agenda in advance of the European Parliamentary elections in May 2014. This resulted in the adoption of many EU Regulations and Directives in the first half of the year. There is still, however, some outstanding legislation still going through the EU legislative process, and much of the legislation that has been adopted envisages further legislation and regulation in the form of delegated regulations to be adopted by the EU Commission comprising technical standards to be drafted by the European Supervisory Authorities (the “ESAs”)1. We have set out below the likely key areas of activity during 2015.

Derivatives Reporting. The European Market Infrastructure Regulation (“EMIR”), providing for the regulation of derivatives in the EU, has been in force since 2012 but many of the key provisions are only now beginning to come into effect. Rules requiring reporting of derivative transactions to trade repositories started to be phased in from February 2014 and are now largely implemented. There were, however, some difficulties in implementation of the rules which represented a logistical and administrative challenge for many market participants. Many of these issues have now been resolved, but in November 2014 ESMA proposed various changes to the relevant technical standards to seek to resolve certain issues. It is therefore likely that there will be some technical amendments to the derivatives reporting regime in early 2015.

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Industry Divided as Regulators Mull NDF Clearing

By David Wigan
November 12, 2014, EuroMoney

European proposals for mandatory clearing of non-deliverable forwards (NDFs) published in October seemed to be a decisive step toward a new framework for FX derivatives trading. However, responses to the consultation reveal deep divisions among FX market participants over the way forward.

As its counterpart in the US – the Commodity Futures Trading Commission (CFTC) – considers its position, the European Securities and Markets Authority (ESMA) on October 1 launched a public consultation in respect of an NDF clearing obligation under European Market Infrastructure Regulation (EMIR), with responses published on its website on Friday.

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CFTC Deference Needed for EC to Recognize U.S. Clearing Houses

By Hazel Sheffield
November 10, 2014, GlobalCapital

The European Commission is discussing  its rules on anti-procyclicality with the Commodity Futures Trading Commission in an effort to grant equivalence to US clearing houses. However, the US must look to reciprocate by acting with deference to countries’ regimes, according to Patrick Pearson, head of financial market infrastructure at the European Commission.

The US has not been granted equivalence under the European Market Infrastructure Regulation despite several other regimes achieving this status in recent weeks. On November 7, Pearson said that the EC will soon recognise clearing regimes in Canada, Mexico, India and New Zealand as equivalent, at a conference hosted by the Asia Securities Industry and Financial Markets Association. This followed the EC’s decision on October 30 to grant equivalence to clearing regimes in Singapore, Japan, Australia and Hong Kong. Now Pearson has told GlobalCapital that the CFTC needs to deliver on deference to the regimes of other countries if it is to be deemed equal.

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Eurex CEO Slams European Clearing Mandate Delay

By Aaron Woolner
October 29, 2014 Risk

The global nature of OTC derivative markets means a synchronised approach to clearing is required, according to Andreas Preuss, Eurex chief executive

The European Union's decision to delay the introduction of its over-the-counter derivative clearing mandate to 2015 is "unfortunate" and creates an "implemented disadvantage" for the aim of increasing safety in the sector, according to Andreas Preuss, chief executive of Frankfurt-based Eurex.

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Clarity Needed on Clearing Rules for Non-EU Entities

By Hazel Sheffield
October 22, 2014 GlobalCapital

Market participants outside of the EU are grappling with European regulation that mandates clearing for non-EU derivatives contracts, resulting in a lot of interpretive differences according to lawyers.

On October 10, the European Market Infrastructure Regulation came into force for derivative contracts between two non-EU counterparties in jurisdictions not deemed equivalent to Europe, but where the contract could have a direct, substantial and foreseeable effect in the EU. From this date, certain non-EU counterparties, or third country entities as they are known, must comply with the clearing obligation and apply risk mitigating techniques for uncleared transactions.

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