European Commission consults on EMIR equivalence decisions

On 20 January 2021, the European Commission published for a four-week public consultation draft equivalence decisions for Australia, Brazil, Canada, Hong Kong, Singapore and the US concerning risk management requirements for transactions in non-cleared OTC derivatives under Regulation (EU) No 648/2012 of the on OTC derivatives, central counterparties and trade repositories (EMIR). The comment period closes on 17 February 2021. While all of the decisions concern Article 11 EMIR requirements, their scope varies depending on the jurisdiction:

Australia: draft Article 11 EMIR equivalence decision for Australia recognises the legal, supervisory and enforcement arrangements of Australia for portfolio compression and transaction valuation that are applied to non-centrally cleared derivative transactions regulated by the Australian Prudential Regulation Authority (‘APRA’) as equivalent to the requirements set out in Article 11(1) and (2) EMIR where at least one of the counterparties to those transactions is an APRA covered entity as defined under Prudential Standard CPS 226. The draft decision also recognises as equivalent to Article 11(3) EMIR requirements the legal, supervisory and enforcement arrangements of Australia for the exchange of collateral that are applied to non-cleared derivative transactions regulated by APRA subject to two requirements: (a) at least one of the counterparties to those transactions is an APRA covered entity as defined under Prudential Standard CPS 226; (b) variation margin is provided on the same day on which it is calculated (unless it is established between the counterparties that variation margin cannot consistently be provided on the same day on which it its calculated and where variation margin is provided within 2 working days of its calculation and the margin period of risk used to calculate the initial margin is adjusted accordingly).
Brazil: draft Article 11 EMIR equivalence decision for Brazil recognises the legal, supervisory and enforcement arrangements of Brazil for timely confirmation, daily valuation and portfolio reconciliation that are applied to transactions regulated as OTC derivatives by the Banco Central do Brasil (‘BCB’) and the Comissão de Valores Mobiliários (‘CVM’) as equivalent to Article 11(1) and (2) EMIR, where at least one of the counterparties to those transactions is an in-scope counterparty for the purpose of the margin rules of Brazil. In addition, the decision recognises as equivalent to Article 11(3) EMIR arrangements for the exchange of collateral that are applied to transactions regulated as OTC derivatives by the BCB and the CVM, with the exception of physically settled commodity derivatives but not including gold derivatives.

Canada: draft Article 11 EMIR equivalence decision for Canada recognises the legal, supervisory and enforcement arrangements of Canada for dispute resolution obligations set out in Guideline B-7 that are applied to non-centrally cleared derivative transactions regulated by the Office of the Superintendent of Financial Institutions (‘OSFI’) as equivalent to the requirements set out in Article 11(1) EMIR, where at least one of the counterparties to those transactions is established in Canada and is a Covered Federally Regulated Financial Institution (‘Covered FRFIs’) as defined under Guideline E-22. In addition, the draft decision recognises for the purpose of Article 11(3) EMIR as equivalent the legal, supervisory and enforcement arrangements of Canada for the exchange of collateral that are applied to non-cleared derivative transactions regulated by OSFI, with the exception of physically settled commodity derivatives, subject to two conditions: (a) at least one of the counterparties to those transactions is established in Canada and is subject to the margin requirements of Canada; (b) transactions are marked-to-market and variation margin is exchanged on the same day in which it is calculated (unless it is established between the counterparties that variation margin cannot consistently be provided on the same day in which it is calculated and where variation margin is provided within two business days of its calculation and the margin period of risk used to calculate initial margin is adjusted accordingly).
Hong Kong: draft Article 11 EMIR equivalence decision for Hong Kong recognises the legal, supervisory and enforcement arrangements of Hong Kong for timely confirmation, portfolio compression and reconciliation, valuation and dispute resolution that are applicable to non-centrally cleared derivative transactions regulated by the Hong Kong Monetary Authority (‘HKMA’) as equivalent to the requirements set out in Article 11(1) and (2) EMIR where at least one of the counterparties to such a transaction is an authorized institution as defined in section 2(1) of the Banking Ordinance and subject to the risk mitigation requirements set out in the HKMA’s Supervisory Policy Manual module CR-G-14 entitled “Non-centrally Cleared OTC Derivatives Transactions – Margin and Other Risk Mitigation Standards”. The draft decision also recognises as equivalent for the purpose of Article 11(3) EMIR the legal, supervisory and enforcement arrangements of Hong Kong for the exchange of collateral that are applicable to non-centrally cleared derivative transactions regulated by the HKMA.
Singapore: draft Article 11 EMIR equivalence decision for Singapore recognises the legal, supervisory and enforcement arrangements of Singapore for trade confirmation and dispute resolution that are applied to transactions regulated as OTC derivatives by the Monetary Authority of Singapore (‘MAS’) and that are not cleared by a CCP as equivalent to the corresponding requirements set out Article 11(1) EMIR, where at least one of the counterparties to those transactions is established in Singapore and is a ‘MAS Covered Entity’ as defined under the Guidelines on margin requirements for non-centrally cleared OTC derivative contracts. In addition, the draft decision recognises as equivalent for the purpose of Article 11(3) EMIR the legal, supervisory and enforcement arrangements of Singapore for the exchange of collateral that are applied to transactions regulated as OTC derivatives by the MAS and that are not cleared by a CCP, with the exception of physically-settled commodity derivatives for commercial purposes, subject to two conditions: (a) at least one of the counterparties to those transactions is established in Singapore and is a MAS Covered Entity as defined under the Guidelines on margin requirements for non-centrally cleared OTC derivative contracts of Singapore; (b) transactions are marked to market and variation margin is exchanged on the same day in which it is calculated (unless e it is established between the counterparties that variation margin cannot consistently be provided on the same day in which it is calculated and where variation margin is exchanged within two business days of its calculation and the margin period of risk used to calculate initial margin is adjusted accordingly).
US: draft Article 11 EMIR equivalence decision for US Prudential Regulators recognises the legal, supervisory and enforcement arrangements of the US for the exchange of collateral that apply to transactions regulated as ‘swaps’ as defined in section 721 of the Dodd-Frank Act or ‘security-based swaps’ as defined in section 761 of the Dodd-Frank Act and that are not cleared by a central counterparty as equivalent to the requirements of Article 11(3) EMIR, where at least one of the counterparties to those transactions is established in the US and is considered a Covered Swap Entity by the Board of Governors of the Federal Reserve System (‘the FRS’), the Office of the Comptroller of the Currency (‘the OCC’), the Federal Deposit Insurance Corporation (‘the FDIC’), the Farm Credit Administration (‘the FCA’) or the Federal Housing Finance Agency (‘the FHFA’), and that the counterparty is subject to the Swap Margin Rule laid down in Title 12 of the Code of Federal Regulations, respectively in Part 45 (for the OCC), 237 (for the FRS), 349 (for the FDIC), 624 (for the FCA) and 1221 (for the FHFA) (together ‘the Swap Margin Rule’).

Prior to formal adoption by the European Commission and following completion of public consultation, the draft decisions will have to be formally approved by the European Securities Committee composed of Member States experts.

United Kingdom (and EU regulation)