EMIR REFIT: How to Benefit from the Intercompany Reporting Exemption
By François Masquelier, Chairman of the Association des Trésoriers d’Entreprise de Luxembourg (ATEL)
What does the EMIR REFIT mean for treasurers and how can they benefit – while remaining compliant with all the requirements of the regulation?
When the European Market Infrastructure Regulation (EMIR) Regulatory Fitness and Performance (REFIT) was approved and adopted, treasurers thought it was excellent news and indeed it was. The major improvement was the exemption for reporting intercompany derivatives (EU regulation N° 648/2012 EMIR, revised on 20 May 2019 N° 2019/834, which was published in the Official Journal of the European Union and which came into force on 17 June 2019). This means that when two entities belong to the same group or have the same parent company, at least one of which is a non-financial company (NFC), they are no longer obliged to report intragroup derivative transactions.
In order to obtain the full benefits of this reform, treasurers need to apply for an exemption to their domestic Supervisory Authority and potentially to all other Supervisory Authorities, when they report on behalf of their affiliates. For example, if the group treasury centre is located in Germany, it needs an exemption from the German Federal Financial Supervisory Authority (BAFIN) and should apply according to the procedure defined by that Supervisory Authority (if one has been defined). It should also apply for similar exemptions to all other Supervisory Authorities in the countries where its affiliates are located, if it reports on their behalf.
Best in class exemption process
While the basic EMIR requirements remained unchanged, the REFIT aims to remove the burden of disproportionate and overly complex regulations from non-financial counterparties, small financial counterparties and pension funds.
Unfortunately, not all Supervisory Authorities have precisely defined the procedure for applying for an exemption. Each one has its own individual protocol, which makes the whole process more complicated, and if an exemption is not obtained major problems could result from simply ceasing to report. One of the first and best application processes has been drawn up by the Luxembourg Supervisory Authority (Commission de Surveillance du Secteur Financier[CSSF]), and there is much helpful guidance on their website: (https://www.cssf.lu/en/supervision/emir/). Although it’s quite possible for individual treasurers to make a request for exemption, it can be very helpful to have a consulting firm on hand to advise the treasury team.
Shifting the burden
The second major provision of the REFIT is for companies’ banks to report external deals on behalf of the group central treasury. This delegation of the obligation and responsibility for declaring/reporting is new; previously, corporates were able to delegate these tasks to their bank but remained ultimately accountable for reporting. Now the responsibility will automatically fall on the bank, but I still recommend corporates to notify their banks of this transfer and the date from which it will apply, which is 18 June 2020 – 12 months after EMIR REFIT came into force. I also feel that it would be sensible to ask the bank for evidence that might be needed in any litigation, and to ensure that it does carry out what EMIR and the REFIT demand, including reporting responsibility and accountability.
There are various other provisions of the ‘refit’ which will have to be addressed in due course but these are the two major points.
Ideally, the first step in the application process for treasurers is to carry out an impact analysis and a cost/benefit assessment. The objectives are to mitigate reporting obligations, to simplify processes and to reduce costs (including the time and resources spent internally on reporting). When the exemption has been obtained, treasurers should revisit the procedure and make any necessary adjustments to the IT systems and both internal and external reporting.