THE IMPLEMENTATION OF EMIR IN MALTA

THE IMPLEMENTATION OF EMIR

IN MALTA

Mr Nathan Fenech

Analyst, Securities and Markets Supervision Unit, MFSA

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MFSA Conference Room, Attard

20th February, 2014

Implementation in Malta

• 3 Stage Process:

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STAGE 1 – INFORMATION AND GUIDANCE

Circulars

Guidance Notes

Information Sessions & Queries

STAGE 2 – COMPILATION OF DATA

Financial Counterparties

Non-Financial Counterparties

STAGE 3 – MONITORING OF COMPLIANCE


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Circulars

Guidance Notes






Stage 1 – Information and Guidance

• Circulars

• 10 Circulars Issued:

1) Notification about EMIR’s commencement

2) Draft Legal Notice and Draft guidance notes to CCPs

3) Adoption of a number of technical standards

4) Publication of Legal Notice, EMIR implementation timings,

dedicated section on website, CCP assessment

5) Publication of ESMA Q&A and Notification for NFCs+

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• Circulars (ii)

6) EMIR guidance for Financial and Non-Financial Counterparties

7) Approval of TRs and further publication of technical standards

8) Note on LEIs

9) Draft technical standard on contracts direct, substantial and

foreseeable effect within the Union and non-evasion of rules and

obligations

10) On-site inspections notification

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• Guidance Notes

• Draft guidance notes related to CCPs

• Self assessment for CCPs

• Circular (01/07/2013) guidance to Financial Counterparties and


• Guidance notes related to Financial Counterparties and Non-


• MFSA EMIR Q&A

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• Information Sessions

• EMIR Industry Information Meeting 3rd September 2013

• EMIR Educational Clinic 20th February 2014

• Queries

• A considerable number of queries were received, a large number of

which have been answered

• Some queries awaiting further guidance or clarifications from

ESMA

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8


Circulars

Guidance Notes






Stage 2 – Compilation of Data

• Financial Counterparties

• Sent out 335 individual letters to a large number of licence holders:

• Fund Managers

• Investment Services Licence Holders

• Professional Investor Funds

• UCITS

• Insurance Companies

• Financial Institutions

• Credit Institutions

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• Financial Counterparties (ii)

• Circa 100 entities from the sample taken fall within the scope of

EMIR

• As at December 50% of these entities confirmed full compliance,

whilst the other half still had queries or pending matters with

regards to EMIR’s implementation

• Non-Financial Counterparties

• Circa 200 undertakings fall within the scope of EMIR

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100 Financial

Counterparties

200 Non-Financial

Counterparties

2 NFCs+

300 - Falling within

scope


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Circulars

Guidance Notes






Stage 3 – Monitoring of Compliance

• In January 2014 the MFSA commenced with a number of

on-site inspections with regards to EMIR

• Scope of inspections:

• Better understanding of the nature of the entity/undertaking’s

activities

• Review of the relevant controls and procedures

• Guidance to the Company to meet the necessary requirements

under EMIR

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• On-Site Inspections Outcome?

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Required Guidance

Partially Implemented

Satisfactory


• What is the MFSA expecting?

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REPORTING

OBLIGATION

Legal Entity Identifier (‘LEI’)

Trade Repository / Delegation of Reporting

Record Keeping (5 Years)

RISK MITIGATION

TECHNIQUES

Agreements with Counterparties (e.g Master Agreements)

Portfolio Compression

Timely Confirmations

Dispute Resolutions

Portfolio Reconciliations

Possible use of external agreements (e.g. ISDA

Agreement Extension - EMIR Portfolio Reconciliation,

Dispute Resolution And Disclosure)


• Other Matters:

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ESMA Guidance

Portfolio Reconciliation

Missing LEIs

90 Day Back-Loading

CHALLENGES


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ESMA Guidance


Missing LEIs

90 Day Back-Loading

CHALLENGES

Guidance

• A number of issues required further clarification or

assistance from the European Securities and Markets

Authority (‘ESMA’)

• Issues which were resolved:

1) Clarification on portfolio reconciliation regarding NFCs- having

less than 100 contracts

2) Missing LEIs on the 12/02/2014

3) 90-Day back-loading clarification

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Guidance – Portfolio Reconciliation (i)

• Portfolio Reconciliation for NFC-

• How to determine frequency?

• Monitor number of contracts every day?

• Review upon reconciliation date?

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NO OF OUTSTANDING OTC

DERIVATIVE CONTRACTS FREQUENCY

> 100 Once Per Quarter

≤ 100 Once Per Year

Guidance – Portfolio Reconciliation (ii)

• Example

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1st reconciliation

15th December

2013

Next

Reconciliation

15/12/2014

Always

≤100 contracts

in the past

quarter?

Yes

No

Next

Reconciliation

15/03/2014

Guidance – Missing LEIs (i)

• Everyone should have applied for a Legal Entity Identifier

(‘LEI’) by now – for reporting purposes

• In practice there may have been a backlog from the LEI

providers which created problems on the reporting

obligation start date (12/02/2014)

• When reporting a derivative contract to a Trade

Repository, the details of both counterparties has to be

filled-in (i.e. LEIs of both counterparties!)

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Guidance – Missing LEIs (ii)

• What if your counterparty has no LEI yet? Does that mean

that I cannot report, and that I would be in breach of

EMIR?

• ESMA issued guidance for an interim solution in this

regard:

• Reporting without an LEI is not in compliance with EMIR

• If a counterparty has to report and does not have an LEI, it is

preferable to report without the LEI than not to report at all

• Trade Repositories should be able to accept reports without LEIs

for this short period of time until LEIs are issued

• You might wish to use some other interim identifier

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Guidance – 90 Day Back-Loading (i)

• Reporting commenced on the 12th February 2014, and

contracts which were outstanding on or after the 16th

August 2012 have to be reported (Back-Loading)

• EMIR specifies that those contracts which were

outstanding on the 16th August 2012 and which remained

outstanding on the 12th February 2014, have to be

reported within 90 days

• What about those contracts entered into on or after the

16th August 2012 and which remained outstanding on the

12th February 2014?

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Guidance – 90 Day Back-Loading (ii)

• Put simply:

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16th August 2012 12th February 2014

Contract A

01/01/2012 – 01/01/2015

Contract B

15/11/2013 – 15/11/2016

90 Days To Report

Report T+1

i.e. 13/02/2014


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ESMA Guidance


Missing LEIs

90 Day Back-Loading

CHALLENGES

Challenges

• Identification of Non-Financial Counterparties

• Assistance from Financial Counterparties

• Awaiting Trade Repository reports

• Issues relating to the reporting obligation

• Definition of derivative contracts vis-à-vis MiFID

• Sole traders (LEI vs Client code)

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Thank You

Mr Nathan Fenech

Analyst, MFSA

Queries: [email protected]

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mailto:[email protected]

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THE IMPLEMENTATION OF EMIR IN MALTA