Efforts are underway to muster support from European policy makers for changes to derivative regulations that continue to plague the treasury departments of multinational corporations (MNCs). The efforts, if successful, would address major differences in the post-financial crisis reforms between Europe and other regulatory jurisdictions, including the US. The efforts are focused on the European Commission’s (EC) mandated review of the European Markets Infrastructure Regulation (EMIR).
EC issued a public consultation on the issue in May. Comments were due by mid-August, and a report detailing any suggested changes to EMIR, finalized three years ago, is expected early next year. In anticipation, the Coalition of Derivative End-Users, which played a significant role in the successful effort to exempt corporate end users from swap margin requirements, has been conferring with European corporates and the organizations that represent their corporate treasury functions.
“We’re finding incredible alignment on the issues” faced by US and European treasurers,” said Luke Zubrod, director of risk and regulatory advisory at Chatham Financial.
To provide end users’ take on the issues, Mr. Zubrod and other Coalition representatives met with European officials in Brussels and Paris this week. They also met with European-based corporate treasury officials and those who represent their concerns in Brussels and Paris, including European and French treasury associations.
Mr. Zubrod noted several issues of concern, including swap reporting requirements that only EMIR requires. All MNCs transacting out of European entities must abide by the requirements – a requirement that doesn’t exist outside of Europe.
In the US, only dealers must report swap data to swap data repositories (SDRs), whereas EMIR requires both dealers and end users to report the data, and to audit and reconcile differences. Mr. Zubrod said that’s a primary concern of MNC treasurers, as well as the requirement for companies to report swap data for transactions between their affiliates, an issue resolved by the CFTC last year when it exempted reporting inter-affiliate trades as long as they meet certain requirements.
Also on the radar screen, by February 2017 swap end users will have to report historical swaps if the trade was active as of August 16, 2012 but matured before February 12, 2014. Mr. Zubrod said this reporting issue will likely become more of a concern as the deadline approaches.
“There’s an increasing belief that regulators can’t make sense of the data they have for new trades, and with this requirement they’re asking end users to go back years for trades that are no longer on companies’ books,” he said.
Another issue raising concerns among corporate end users is ESMA’s August recommendation to remove corporate end users’ exemption from clearing.
“That’s unlikely to happen because European parliament, which blocked a similar proposal when EMIR was originally negotiated, and will likely continue to resist the idea, but it’s definitely gotten people’s attention that ESMA recommended it,” Mr. Zubrod said.