REFIT published in OJ

A brief overview of key immediate practical consequences of the EMIR REFIT.

The EMIR REFIT was published in the Official Journal of the European Union on 28 May and will enter into force 20 days following publication (ie 17 June 2019). For detail on the changes being made by the EMIR REFIT, please see our article.

At the same time, the European Securities and Markets Authority (ESMA) has updated its EMIR Q&A, providing additional guidance in respect of certain aspects of the EMIR REFIT changes.

Four of the key immediate practical consequences of the EMIR REFIT are the following:

  • The EMIR classification of any EU AIF with a non-EU AIFM and any non-EU AIF with a non-EU AIFM will change as set out below. Any AIF affected by this change should consider whether they are under any contractual obligation to notify their counterparties.
       Current classification New classification 
    EU AIF with non-EU AIFM  NFC  FC
     Non-EU AIF with non-EU AIFM  TCE that would be an NFC if established in the EU (hypothetical NFC) TCE that would be an FC if established in the EU (hypothetical FC)
  • Any AIF that is reclassified as an FC or hypothetical FC will become subject to the variation margin requirements of EMIR immediately upon the entry into force of the EMIR REFIT - ie 17 June 2019. To the extent that its credit support documentation had not been updated in March 2017 (eg because it was an NFC- or hypothetical NFC-), this documentation will need to be updated as soon as possible.

  • FC and NFC+ entities that either:
    • do not wish to perform the calculation against the clearing thresholds (eg because they are already clearing and/or are confident that they would be above the clearing thresholds), or
    • do perform the calculation, on the basis of its aggregate month-end average position for OTC derivatives for the previous 12 months, and are above the clearing thresholds,
  • need to send a notification to both ESMA and the relevant national competent authority. These notifications have to be made when the EMIR REFIT enters into force - ie on 17 June 2019. They also need to be made even where the entity is already subject to the clearing obligation (eg a Category 1 or 2 FC) and/or, in the case of an NFC+, where it had previously sent a notification.

    Where the clearing obligation has not yet commenced for an entity, the clearing obligation in relevant asset classes will apply to transactions entered into or novated more than 4 months after such notification. For Category 3 FCs, this means that the current clearing start date of 21 June 2019 is effectively extended.

  • Category 3 FC entities, certain Category 4 NFC+ entities and existing NFC- entities that are not currently subject to the clearing obligation and wish to avoid the clearing obligation will have to perform the calculation and be under the relevant clearing thresholds as of when the EMIR REFIT enters into force - ie on 17 June 2019. However, no notifications are required.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.