COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document PROPOSAL FOR A REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories
Date: 2017-05-04
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: administrative check, contract, financial instrument, financial legislation, financial transaction, futures market, market supervision, technical standard

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   EUROPEAN COMMISSION  Brussels, 4.5.2017  SWD(2017) 149 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document PROPOSAL FOR A REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories  {COM(2017) 208 final} {SWD(2017) 148 final}  
 
 
Executive Summary Sheet 
Impact assessment on possible amendments to Regulation (EU) No 648/2012 of the European Parliament and of 
the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories 

A. Need for action 

Why? What is the problem being addressed?  
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, 
central  counterparties  and  trade  repositories  ('EMIR')  responded  to  the  commitment  by  G20  leaders,  made  in 
September  2009,  to  implement  certain  requirements  for  OTC  derivative  contracts  on  a  global  basis.  EMIR 
pursues the objective of reducing the systemic risk by increasing the transparency of the OTC derivatives market 
and reducing the counterparty credit risk and the operational risk associated with OTC derivatives. Some of the 
requirements  introduced  to  this  end  have  entered  into  application,  while  others  are  not  yet  in  force.  The 
Commission's  monitoring  of  the  market  and  input  received  from  stakeholders  and  EU  bodies  and  authorities 
showed broad support for the overall objectives of EMIR but pointed to a number of issues leading to the EMIR 
objectives not being met in the most effective and efficient way. These concern in particular (i) disproportionate 
compliance  costs  that  in  a  number  of  cases  outweigh  prudential  benefits,  (ii)  Insufficient  transparency  of  OTC 
derivatives positions and exposures and (iii) insufficient access to clearing for certain counterparties. 

What is this initiative expected to achieve?  
The  envisaged  options,  while  maintaining  the  framework  set  up  by  EMIR,  aim  at  rendering  the  application  of 
EMIR more effective and efficient by increasing the proportionality of rules, increasing the transparency of OTC 
derivatives positions and exposures and reducing impediments to access to clearing. To this end, a number of 
targeted  adjustments  to  EMIR  are  considered  and  assessed  against  the  overarching  objective  of  EMIR  to 
safeguard financial stability. 
What is the value added of action at the EU level?  
The  EMIR  Regulation  is  binding  in  its  entirety  and  directly  applicable  in  all  Member  States.  The  targeted 
adjustments to existing EMIR provisions envisaged by this initiative can only be made at EU level on the basis of 
Article 114 of the Treaty on Functioning of the European Union.   
B. Solutions 
What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
The  initiative  consists  of  a  review  of  the  existing  EMIR  Regulation.  Consequently,  the  options  considered 
concern targeted adjustments of specific (legislative) provisions. To achieve the desired objectives, a number of 
preferred policy options have been identified:  

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to  provide  for  a  new  transitional  exemption  of  Pension  Scheme  Arrangements  from  the  clearing 
obligation; 
to reduce the scope of the clearing obligation for Non-Financial Counterparties ('NFCs');  
to remove very small financial counterparties from the scope of the clearing obligation;; 
to remove the "backloading" obligation; 
to exempt NFCs from the intragroup transactions reporting obligation; 
for  exchange-traded  derivatives  transactions,  to  introduce  single-sided  reporting  by  the  central 
counterparties; 
for  transactions  other  than  exchange-traded  derivatives  transactions,  to  provide  for  reporting  by  the 
financial counterparty of the trade with a small NFC; 
to further harmonise the reporting rules and procedures and to require trade repositories to ensure the 
quality of data; 
to  increase  the  upper  limits  of  the  basic  amounts  of  fines  for  infringements  of  EMIR  requirements  by 
trade repositories;  
to clarify the interaction between EMIR default management tools and national insolvency laws and to 
introduce  a  principle  to  provide  clearing  services  under  Fair,  Reasonable  And  Non-Discriminatory 
commercial terms ('FRAND' principle) in EMIR. 

Who supports which option?  
Stakeholder  feedback  on  the  functioning  of  EMIR  was  obtained  through  two Commission public  consultations. 
The  consultation  raised  a  number  of  specific  questions  but  did  not  highlight  any  concrete  policy  options  that 
could be considered. There was wide support from all groups of stakeholders for increasing the proportionality of 
rules.  Trade  reporting  received  a  lot  of  attention.  Respondents,  mainly  corporate  enterprises  and  industry 
associations, asked for a reduction of reporting requirements for non-financial counterparties. A large number of 
respondents  across  different  classes  of  stakeholders  also  considered  that  double-sided  reporting  should  be 
replaced by single-sided reporting – an option assessed, but rejected in this impact assessment. Respondents 
also raised the need to introduce exemptions from clearing and margining requirements for counterparties that 
are not systemically important.  

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Discussions held with Member States' experts at a later stage included the specific policy options considered. A 
majority of Member States' experts was in favour of the preferred options retained in this impact assessment. 

C. Impacts of the preferred option 
What are the benefits of the preferred option (if any, otherwise main ones)?                                       
First,  the  proposed  modifications  will  reduce  compliance  costs  and  burden  imposed  on  market  participants, 
without  adversely  affecting  financial  stability.  Greater  proportionality  in  the  application  of  clearing  rules  will 
benefit NFCs as the envisaged measures will ensure a better level-playing field as a higher threshold will only 
place the largest NFCs in scope of clearing requirements. A re-calibration of what constitutes an SFC that would 
be subject to the clearing obligation will allow lightening the burden of those (very) small financial counterparties 
for which central clearing is  not economically feasible. Pension Scheme Arrangements will benefit from a new 
transitional clearing exemption on the grounds that no viable technical clearing solution has emerged to date. All 
counterparties  will  benefit  from  the  lightening  of  certain  reporting  requirements,  such  as  the  removal  of  the 
"backloading" obligation Second, greater transparency of OTC  derivatives positions  and  exposures will enable 
authorities to identify any potential problems at an earlier stage and to take timely action addressing any risks, 
thus benefitting the resilience of financial markets. Third, improved access to clearing will allow additional market 
participants  to  manage  and  hedge  their  risks  and  by  reducing  the  likelihood  of  sudden  shocks  and  business 
disruptions occurring contribute to a less volatile business development and job security of their employees.   
What are the costs of the preferred option (if any, otherwise main ones)?                                       
Overall,  there  should  be  no  significant  relevant  social  and  economic  cost.  The  envisaged  simplification  and 
increased  proportionality  of  rules  on  reporting  will  allow  achieving  the  objectives  of  EMIR  while  considerably 
reducing  the  overall  administrative  burden  borne  by  counterparties  that  are  subject  to  reporting  requirements 
under  EMIR.  Where  a  transfer  of  the  reporting  obligation  is  considered,  the  entities  that  should  take  on  the 
reporting obligation in the future are better equipped for this task and, due to the economies of scale involved, 
the  relevant  overall  aggregate  costs  should  decrease.  The  further  harmonisation  of  reporting  rules  and 
procedures  may  at  most  involve  some  limited  additional  administrative  costs  in  the  initial  stages  of 
implementation, but should lead to greater efficiencies and reduce the overall burden in the mid-term. Similarly, a 
requirement  to  observe  fair,  reasonable  and  non-discriminatory  commercial  terms  in  the  provision  of  clearing 
services,  which  will  benefit  many  counterparties,  is  expected  to  involve  only  limited  additional  administrative 
costs.  
The  combined  effect  of  all  preferred  options  is  a  significant  reduction  of  costs.  Estimates  of  potential  savings, 
calculated  solely  for  the  purpose  of  this  impact  assessment  and  taking  into  consideration  all  the  underlying 
assumptions described in annex 8, range from EUR 2.3 billion to EUR 6.9 billion in fixed (one-off) costs and from 
EUR  1.1 billion  and  EUR 2.66 billion in operational costs. A number of limitations  affect the reliability of these 
estimated cost reductions. First, these estimates are valid only at the current point in time. Requirements that will 
apply  at  a  later  stage,  such  as  the  phased-in  application  of  margin  requirements,  have  not  been  taken  into 
account  in  the  calculations.  Second,  calculations  are  based  on  the  limited  amount  of  data  that  is  publicly 
available and on anecdotal market intelligence, which may not accurately capture the diversity and the specificity 
of  the  counterparties  at  play.  Third,  calculations  are  based  on  the  assumption  that  the  cost  reductions  will  be 
entirely  passed  on  to  end-users.  Fourth,  minimal  adjustment  costs  resulting,  for  instance,  from  introducing 
FRAND  terms  (expected  impact  on  clearing  members)  and  from  measures  to  increase  the  quality  of  data 
(expected impact on TRs) have not been included in this calculation.  
How will businesses, SMEs and micro-enterprises be affected?  
Businesses,  SMEs  and  micro-enterprises  will,  in  particular,  benefit  from  the  options  aimed  at  (i)  reducing 
regulatory  requirements  in  cases  where  disproportionate  compliance  costs  appear  to  outweigh  prudential 
benefits and (ii) improving access to clearing. Non-financial counterparties will benefit from the adjustment of the 
scope  of  the  clearing  obligation.  The  simplification  of  reporting  requirements  will  benefit  all  counterparties, 
including SMEs. Finally, introducing new FRAND principles will make it easier to find access to clearing for many 
counterparties.  
Will there be significant impacts on national budgets and administrations?  
No. The amendments considered should not trigger relevant costs for national budgets and administrations. 
Will there be other significant impacts?   
No.   

D. Follow up 

When will the policy be reviewed?   
Keeping in mind that the EMIR requirements entered into application at different points in time and that some of 
them are not yet in force, an evaluation of EMIR in its entirety should be carried out, with a particular focus on its 
effectiveness  and  efficiency  in  meeting  EMIR's  original  objectives.  This  evaluation  should  include  the  targeted 
amendments  considered  in  the  present  initiative  and  take  place  at  least  3  years  after  the  application  of  these 
amendments. In certain cases, notably for pension scheme arrangements, it is important to monitor progress in 
the availability of solutions for PSA clearing on an ongoing basis. 

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