EMIR. Annemarie Moore Group Treasurer Plan International

Transcription

1 EMIR Annemarie Moore Group Treasurer Plan International

2 What and Why 2009, G20 leaders agreed on reform of financial markets (regulation, transparency). European version called EMIR (European Markets Infrastructure Regulation); in UK, mostly implemented by FCA (Financial Conduct Authority). Covers All OTC and exchange traded derivative contracts, including fx (including forward deliverable) and interest rate. Charities/NGOs entering into Deliverable Forward FX, NDF, OPT, SWAPs are affected if they deal in in-scope products Requires regulatory obligations to be adhered to by both financial and nonfinancial counterparties incorporated in the European Union. Key consideration to Plan Intl would be that many obligations fall equally on both parties 2 Plan International

3 What is in Scope Foreign Exchange for reporting purposes? MiFID complications EMIR uses MiFID for definitions MiFID is a directive and therefore leaves interpretation of definitions to member countries Why does this matter? Because we need to know if an FX Deliverable forward is a derivative? Forward contract definition under FCA differs from other member states liable to change as MiFID II comes out keep a watching brief Implementation of MiFID II is 3 January 2017 What is FCA view? Is it that a Deliverable Forward FX is one that is not for commercial purposes? EU view Whether FX is for commercial purposes is irrelevant as that clause in MiFID only applies to commodities What is commercial purposes anyway? Do Forwards need to be reported if under 7 days maturity? Regardless it appears that the FCA has cautioned that counterparties are individually responsible for determining whether their FX forward contracts have been entered into for commercial purposes according to applicable local legislation 3 Plan International

4 Obligations of parties to an OTC Derivative- confirming and reconciling Affected contracts have to be confirmed to and by the relevant bank within 1 business day Any outstanding unconfirmed after this time must be able to be reported by the charity/ngo to the regulator Portfolio reconciliation and dispute resolution processes need to have been agreed between both counterparties. Each party to contracts must have in place an agreement as to which has elected to be Portfolio Data Receiving Entity or Portfolio Data Delivering Entity (PDRE). The Receiving Entity is most likely choice for a charity as it avoids the need to send portfolio file to bank. Plan Intl is a receiving entity However The receiving entity is obligated to reconcile data received from bank, and report discrepancies within five business days. Unreported discrepancies outside time limit are deemed agreed. 4

5 Obligations of parties to a Derivative - reporting Reporting of derivatives commenced Feb 14 Includes intercompany as well as those with banks Both counterparties equally have an obligation to report the transaction to a Trade Repository. One party can report on behalf of both, by prior arrangement (delegated) The obligation still remains with both counterparties, so a charity/ngo that has delegated reporting to its bank would still be legally liable if the bank failed in the reporting. Reporting of transactions applies to all (in scope) Forward FX regardless of hedging purposes or not. Question mark over in scope regarding EMIR MiFID and FCA Reporting is to be done by close of business the business day following the date the transaction was entered into. 5

6 Obligations of parties to an OTC Derivative - clearing Central Clearing of FX Derivatives Exemptions Any Non-financial counterparty with turnover of Forward FX under 3bn per annum is known as an NFC (minus) An NFC- need not centrally clear forward FX Forward FX that is for hedging need not centrally clear 6

7 Obligations of parties to an OTC Derivative Legal Entity Identifier (LEI) or initially, a pre-lei. any counterparty that enters into a derivative transaction should have a Legal Entity Identifier (LEI) An LEI is a unique code that identifies the entity entering into the derivative transaction. The London Stock Exchange issues LEI in the UK Not limited to obtaining LEI from UK issuer Record keeping Records are to be kept for at least 5 years from the termination or maturity of the contract. Non-compliance - The FCA has the power to apply penalties including fines to entities that fail to comply with its EMIR obligations. 7

8 Issues prior to implementation Lack of information Banks request adherence to protocols this is so they comply not to ensure client complies so there is a risk of assumption of compliance by client if research and knowledge not acquired. Plan had to look for the information, what we needed to comply with, the deadlines and the how to s You can only look for what you know needs looking for in the first place. Information on line out of date sequence and often undated Lack of up to date information Its not the bank s role to ensure client is compliant so they are not a source Legal, expensive FCA website, not as informative as could be We got there in the end By Research Consulting with pro-bono specialist legal teams 8 Plan International

9 Issues post implementation Reporting On line trade reporting spreadsheet is complex Time intensive Annual Maintenance of the clearing exemption Annual Maintenance of the LEI Stream of protocols to sign up to. We used Markit for signing up to the ISDA protocols Recognising a risk of non compliance Portfolio Reconciliation The banks could decide to send a portfolio to be reconciled more often than the requirement The onus is on the receiver to reconcile In extreme cases that could be daily one bank said it would send daily (we pushed back) The files for reconciliation are complex and include valuations which a non financial would find impossible to verify 9 Plan International

10 What has FX regulation meant for Plan International? What has changed? Regulation adds a compliance risk to derivative transactions. Plan Intl is USA entity and falls under Dodd Frank (the US equivalent.) Less onerous than EMIR regarding reporting but still work intensive and runs risk of noncompliance (fines, reputational risk) Plan International Inc no longer uses forward contracts for hedging but manages risk using the spot market and natural exposures 10