FIA has published a review of the cumulative effect of European derivatives law reform, setting out the core issues and offering potential solutions to encourage further debate.
The aim of the white paper is to assist key legislative and regulatory bodies in addressing inconsistencies and unintended consequences brought about by a range of current and proposed European derivatives regulations.
Among the core recommendations in the paper are:
- Amending the Leverage Ratio under Basel III to recognise the exposure-reducing effect of segregated margin;
- Allowing indirect clearing clients to opt out of the ‘leapfrog’ payment regime;
- Exempting exchange-traded derivatives from the pre-execution and straight-through processing checks under MiFIR;
- Greater harmonisation of cross-border regulation; and
- Removing the EMIR reporting obligation with respect to exchange-traded derivatives; changing the dual-sided EMIR reporting regime to a single-sided regime; and consolidating all of the existing derivatives reporting obligations into a single EU regulation.
While recognising that numerous positive outcomes have been, and will be, achieved as a result of the G20 Commitments published in 2009, a lack of detail in the G20 Communique as to precisely how those Commitments should be implemented has resulted in some materially different approaches by regulators in the US and Europe. The paper calls for further debate and discussion by legislative and regulatory communities across the globe to address these inconsistencies and find solutions to enable a common approach to equivalence determinations.
“Of all the recommendations contained in this paper, the most critical one is that the leverage ratio under Basel II should be amended to recognise the exposure-reducing effect of segregated margin,” said FIA's CEO of Europe Simon Puleston Jones. “Without that important change, the viability of clearing under EMIR is significantly at risk.”