The International Swaps and Derivatives Association (ISDA) and the Futures Association (FIA) have published their client Cleared OTC Derivatives Addendum in addition to their masteragrements to facilitate compliance with the compensation obligation under a principled customer compensation model. The customer compensation addendum was designed to allow clearing by all major central counterparties on the basis of their rules, so there is no need to negotiate separate terms for the clearing of each clearing class through separate central counterparties. ISDA has also published other clearing documents, including an EMIR matching letter that allows counterparties (i) to indicate their counterparty status for each of the compensation categories. and (ii) their category for phase-in purposes. The collateral exchange requirements only apply to new contracts concluded after the corresponding entry dates, whereas this will allow for new transactions under a pre-clearing agreement. Counterparties must consider how the rules apply to a set of offsets in which part of each OTC derivative contract is concluded before the relevant phase-in date and the rest is subsequently concluded. In June 2017, the Commission proposed a second set of amendments to the EMIR Regulation, known as Emir 2.2, to improve supervision of central counterparties in third countries and to strengthen the coherence of supervision of the EU`s central counterparties. An interim agreement was reached between Parliament and the Council on 13 March 2019. Further technical work is still under way before the final texts are formally adopted. Please note that several companies have developed specific agreements for this purpose. If existing or future derivative contracts have been concluded under a master`s contract from the International Swaps and Derivatives Association (ISDA), it is possible to sign a corresponding ISDA-EMIR protocol. Article 75 EMIR provides for the Commission to provide for equivalent decisions concerning a third country where that third country has legally binding requirements for monitoring central repositories equivalent to those provided for by the EMIR Regulation. Since EUWA maintains the current regime under the EMIR Regulation, the UK should be able to comply with these requirements after Brexit, but a declaration of equivalence, in accordance with Article 25, must be made by the Commission.
When such an equivalence decision is taken, a central repository of third countries may apply to the AEMF for recognition under the EMIR Regulation, provided that the third country concerned has entered into cooperation agreements with the EU authorities facilitating the exchange of information. After recognition, counterparties subject to the reporting obligation may report transactions for EMIR compliance with the central repository of third countries. In any event, eMIR will continue to apply to any counterparty of a British company established in the EU, so that exchanges between a British entity and an EU entity should continue to comply with the provisions of the EMIR Regulation on the exchange of guarantees, and the compensation requirements will continue to apply when the contract is concluded between an EU entity operating in the EU and a British entity established in the EU. This could mean that counterparties must comply with two rules for margin and clearing rules – the UK`s national rules and the EMIR rules. In addition, when the United Kingdom becomes a third country, central counterparties established and approved in the United Kingdom no longer automatically have the right to authorize transactions for EMIR purposes. Articles 13 and 25 eMIR give the Commission the power to make equivalency decisions with respect to the requirements for diemargine, compensation and recognition of central counterparties in third countries. We explain in more detail the impact of equivalence in the sections below, but in short, if the Commission were to make equivalence decisions in this regard