The European Market Infrastructure Regulation ("EMIR") requires Irish corporates to begin reporting derivatives trades in Q4 2013. We set out below answers to the 10 most frequently asked questions by Irish corporates regarding their EMIR reporting obligations.
1. When will reporting enter into force?
The reporting obligation for interest rate and credit derivatives will likely commence in late October / early November 2013. The reporting obligation for all other types of derivatives will likely commence on 1 January 2014.
2. What contracts must be reported?
Any derivative contracts (either OTC or exchange-traded) outstanding on 16 August 2012 and any derivative contracts entered into on or after 16 August 2012 must be reported.
3. Who is obliged to report?
Both parties and Central Counterparties ("CCPs") are obliged to report under EMIR. A party may delegate the reporting task, but must ensure details are reported without duplication.
4. Who do Irish corporates report to?
Reporting must be to a trade repository registered in accordance with EMIR (or a non-EU trade repository recognised under EMIR). If a trade repository is not available to record the details, reports must be made to ESMA. In practical terms, unless the reporting obligation can be outsourced, this will require Irish corporates to develop contractual arrangements with one or more trade repositories.
5. What details must be reported?
Details of any derivative contract concluded, modified or terminated must be reported to a trade repository. The details to be reported relate to both the parties themselves and the contract, and are laid down in the secondary legislation implementing EMIR. In all, there are 85 fields of data to be reported.
6. What is the deadline for reporting?
Details must be reported no later than the working day following the conclusion, modification or termination of the contract.
7. What other obligations apply?
Both parties are also required to keep records of the derivative contracts concluded or modified for at least five years from the termination of such contracts.
8. What about confidentiality?
EMIR expressly provides that the reporting of details shall not be considered a breach of any restriction on disclosure of information imposed by the contract or by any legislative, regulatory or administrative provision.
Additional diligence may be required to ensure that this provision, together with any contractual waiver of confidentiality, is sufficient in each relevant jurisdiction. For example, derivatives contracts governed by New York law may not recognise the EMIR provisions in relation to confidentiality.
9. What are the consequences for failing to report?
The consequences for breach of EMIR are to be determined by the national regulators of each EU Member State, though they must include, at least, administrative fines. It is expected that the Central Bank of Ireland will be appointed as national regulator in Ireland, however, this has not yet happened.
10. What should I do to prepare for reporting?
Any existing transaction documentation should be updated to take account of the obligations imposed by EMIR. The International Swaps and Derivatives Association ("ISDA") is preparing standard wording for incorporation in ISDA Master Agreements, which will be of assistance to Irish corporates.
On 10 May 2013 ISDA published the ISDA 2013 Reporting Protocol (the "Reporting Protocol"). The Reporting Protocol is designed to allow multiple ISDA Master Agreements to be simultaneously amended. The Reporting Protocol provides that each party consents to the disclosure of information as required by transaction reporting / information retention rules, including required disclosures to a trade repository under EMIR.
ISDA is also preparing detailed guidance notes on potential amendments that can be made to individual ISDA Master Agreements to deal with issues such as:
- allocation of reporting roles
- co-operation obligations of a non-reporting party
- waiver of confidentiality obligations
- remedies for breach of reporting obligations
- correction of mistakes in reports
This article was first published by the Irish Association of Corporate Treasurers in their July 2013 newsletter.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.