On 2 June 2021, the European Commission (Commission) adopted a Delegated Regulation specifying the conditions under which commercial terms for clearing services for over-the-counter (OTC) derivatives are to be considered to be fair, reasonable, non-discriminatory and transparent (FRANDT).
The statutory basis of the Delegated Regulation is Article 4(3a), third subparagraph, of the European Market Infrastructure Regulation (as amended by EMIR Refit), which empowers the Commission to specify the conditions under which commercial terms for clearing services of clearing service providers are considered to be FRANDT.
The Delegated Regulation is structured as follows:
- Article 1 sets out the scope of the delegated act.
- Articles 2 sets out that commercial terms are to be considered to be FRANDT where they meet certain requirements, set out in the Annex.
- Article 3 contains transitional provisions for existing clients.
- Article 4 specifies when the delegated act will enter into force and from when it will apply.
- The Annex to the Delegated Regulation sets out the requirements that contractual terms must meet to be considered to be FRANDT:
- the transparency of the on-boarding process;
- the form for a request for proposal;
- disclosure of commercial terms;
- risk control assessment;
- the obligation to lay down in the contractual terms in writing;
- fees, prices and pass-on costs; and
- the refusal of clearing orders, suspension of clearing services, liquidation or close-out of client positions, and the termination of contracts
The Delegated Regulation will now be subject to scrutiny by the European Parliament and the Council.
The Delegated Regulation enters into force on the day following that of its publication in the Official Journal of the European Union.
The Delegated Regulation will start to apply six months from its entry into force in relation to new clients. Commercial terms in contracts with existing clients will have to be brought in line with the requirements laid down in the Delegated Regulation within 12 months from its entry into force.