ISDA continues to actively work on various legal issues and documentation initiatives and has produced numerous documentation and technology solutions to aid compliance with various EU regulatory requirements, including those obligations under EMIR, SFTR, MIFID 2/MIFIR and BRRD, among others. Please find more information on ISDA’s EU Legal and Regulatory Implementation and Documentation Initiatives below.
ISDA is also an active participant in discussions with European legislators regarding regulations, supporting legislation and guidance. Links to public materials are also set out on the relevant pages.
EUROPEAN MARKET INFRASTRUCTURE REGULATION (EMIR)
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on over-the-counter derivatives, central counterparties and trade repositories (EMIR) impacts all entities active in the EU derivatives market, whether they use derivatives for trading purposes, to hedge themselves against a particular risk or as part of their investment strategy. EMIR imposes various regulatory obligations that mainly deal with: clearing OTC derivatives, mitigation of risks associated with uncleared OTC derivatives and the reporting of derivative transactions to trade repositories.
ISDA supports a resilient and efficient market infrastructure that will serve to reduce risk via clearing, increased use of trade repositories and sound bilateral risk management processes. ISDA has and continues to actively work on various legal issues and documentation initiatives and has produced numerous documentation and technology solutions to aid compliance with EMIR. ISDA has also initiated a WGMR Implementation Program to facilitate the implementation of the margin rules across jurisdictions.
As a feature of the post-crisis financial reform agenda, extensive work has been done by regulators to provide a global framework to provide for the recovery and resolution of systemically important banks. Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms, the Bank Recovery and Resolution Directive (BRRD) implements a common regime providing for a European-wide harmonisation of the rules for the recovery and resolution of banks. The BRRD implements the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions. The implementation date for EU member states was January 1, 2015 (with the exception of the bail-in tool, which had an implementation date of 1 January 2016).
The BRRD focusses on three stages: preventing the need for a restructuring, providing national authorities with powers to intervene, and providing national authorities with various resolution powers to minimise the cost to taxpayers. The BRRD requires each EU member state to establish a national resolution fund to be resorted to in financing the restructuring of a failing bank. The BRRD covers recovery and resolution planning, intragroup financial support, early intervention, resolution and resolution tools and powers, certain safeguards, cross-border group resolution, relations with third countries and financing arrangements. The BRRD provides the European Commission with the power to adopt various delegated acts and requires the European Banking Authority to prepare draft versions of regulatory technical standards and implementing technical standards supplementing certain provisions in the BRRD.
ISDA continues to lead and educate on the development of best practices in local law bank recovery and resolution regime frameworks globally.
Please find our ISDA Bank Recovery and Implementation Initiatives here.
The G20 conclusions reached at Pittsburgh in 2009 included a number of undertakings addressing the transparency and trading of derivatives. In Europe, these would be dealt with in the revision of MIFID, which ultimately resulted not only in a revised Directive, but also in a new Regulation (MIFIR).
The final MIFID 2/MIFIR Level 1 legislation, published in mid-2014, sought to deliver the principles for delivery of these commitments. The legislation set out a process and principles for mandating trading of certain, sufficiently liquid, derivatives contracts on trading venues, as well as the conditions for trading of derivatives on a new category of trading venue designed with derivatives in mind (Organized Trading Facilities or OTFs). It also imposed pre- and post-trade transparency requirements on liquid derivatives contracts, with ESMA tasked to elaborate on the detail of how this would be implemented and identify these contracts. However MIFID 2/MIFIR did much more than this, imposing a broad range of requirements across the financial markets. Other issues addressed by MIFID 2/MIFIR of interest to ISDA members included: Position limits for commodities trading; best execution requirements across a range of financial instruments including derivatives and transaction reporting requirements covering derivatives.
ESMA began work on the elaboration of the detail of these requirements in 2014, with final rules published during the course of 2016. The technically challenging nature of this work, for regulators and industry alike, was demonstrated by the decision, in the MIFID ‘Quickfix’ legislation, to delay the effective date for MIFID 2/MIFIR requirements to 3 January 2018. The ‘Quickfix’ also mandated ESMA to identify ‘Package transactions’ which would and would not benefit from a waiver from pre-trade transparency, based on their level of standardization and liquidity (a post-trade deferred publication regime for Packages having been detailed in RTS 2).
At time of writing, ISDA is working on developing proposals for definition of standardized Packages as part of ESMA’s consultation on Packages, and is also drafting its response to the ESMA consultation relating to application of the Trading Obligation to suitable derivatives contracts. It is also working with members to clarify and interpret the meaning of key aspects of MIFID 2/MIFIR as they relate to derivatives, working with regulators and members.
The regulation on reporting and transparency of securities financing transactions came into force on 12 January 2016, with its various requirements being phased in over a period of time. The primary aim of SFTR is to address perceived risks in the use of securities financing transactions however it also requires risk disclosures and consents to be given in respect of any collateral arrangement involving title transfer or where the collateral-taker has a right to reuse the collateral.
The SFTR Information Statement is a template disclosure document for use by market participants to inform their counterparties, in accordance with Article 15 of the SFTR of the general risks and consequences that may be involved in consenting to a right of use of collateral provided under a security collateral arrangement or of concluding a title transfer collateral arrangement. ISDA has also coordinated and collated contact details from various entities which can be used when a party is providing an SFTR Information Statement to a counterparty.