On 11 March 2019, the FCA published a statement on its website concerning what trade repositories (TRs), and UK counterparties that use them, should do to make sure they are compliant with their EMIR reporting obligations after the UK leaves the EU. For the purposes of the statement, ‘UK counterparties’ includes UK firms and UK central counterparties who will be subject to the UK EMIR reporting regime.
The statement covers the following topics:
- changes for TRs. The FCA will become the UK authority responsible for the registration and ongoing supervision of TRs operating in the UK. TRs who want to offer services from the UK immediately following Exit are required to have a UK legal entity registered by the FCA. The Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018 (TR SI) provides both a conversion regime and a temporary registration regime to ensure TRs can be registered and operational from Exit day. Further details on the options available for TRs can be found on the FCA’s TR webpage. UK counterparties are encouraged to engage with their TRs to understand the choices their TR has made and how this will affect them;
- changes for UK counterparties. After Brexit, all UK firms that enter into a derivative contract (both over-the-counter (OTC) and exchange-traded derivatives) are in scope of the UK EMIR regime and required to report details of those transactions to an FCA-registered, or recognised, TR according to the UK EMIR regime. UK branches of third-country firms (including branches of firms from EU27 countries after Brexit) are not in scope of the UK EMIR reporting regime and so do not have to report under the onshored UK regime. Third-country (after Brexit, including EU27) branches of UK established firms are in scope of the UK EMIR reporting regime and must report details of their derivative transactions to an FCA-registered, or recognised, TR. Non-UK Alternative Investment Funds (AIFs) are generally classified as third-country entities and so are not in scope of the UK EMIR reporting regime. However, where a non-UK AIF is managed by an Alternative Investment Fund Manager (AIFM) that is registered under the onshored UK Alternative Investment Fund Managers Directive (UK AIFMD), it will be reclassified as a financial counterparty for the purposes of the UK EMIR regime and in scope of the reporting requirements;
- reporting of new and outstanding trades under the UK EMIR reporting regime by counterparties in scope. All new derivative trades entered into by UK counterparties on or after 11.00pm on 29 March 2019 are in scope of the UK EMIR reporting regime and are required to be reported to an FCA-registered, or recognised, TR. All outstanding derivative trades entered into by UK counterparties on or after 16 August 2012, need to be held in an FCA-registered, or recognised, TR on 29 March 2019;
- historic EMIR data. UK-based TRs seeking conversion under the TR SI have been instructed to maintain a copy of all historic EMIR data (i.e. derivative trades reported under EMIR that are no longer outstanding) to which the FCA and Bank of England (BoE) currently have access. EU27 based TRs that establish a new TR in the UK and seek temporary registration under the TR SI have been requested to hold a copy of the historic EMIR data to which the FCA and BoE currently have access to in that UK TR group entity;
- inter-TR reconciliation. The FCA will not require UK TRs to undertake inter-TR reconciliation, or provide inter-TR reconciliation statistics to UK authorities, from Exit day. After Brexit the FCA will work with all UK TRs on ways in which it fulfil this requirement in future. There will be no requirement for UK TRs to ‘back report’ any inter-TR reconciliation statistics once an approach towards UK inter-TR reconciliation has been agreed (i.e. whatever is agreed will not apply retrospectively). This approach is subject to any further statements that the FCA may issue;
- data access for authorities. From Exit day, UK TRs will only be required to provide access to data reported by UK counterparties (based on individual mandates) to the FCA, the BoE and other UK authorities listed within the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc and Transitional Provision) (EU Exit) Regulations 2018 (EMIR SI);
- suspension of the reporting requirements. The EMIR SI introduces a new power for the FCA to suspend the reporting obligation for a period of up to one year, with the agreement of HM Treasury. The FCA does not envisage using this new power; and
- EMIR REFIT. HM Treasury has indicated an intention to bring these changes either under the European Union (Withdrawal) Act 2018 or via the draft Financial Services (Implementation of Legislation) Bill (depending on when EMIR REFIT comes into force in the EU).