REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the International Treatment of Central Banks and Public Entities Managing Public Debt with regard to OTC Derivatives Transactions
Date: 2019-01-30
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: United Kingdom, central bank, financial derivative, financial risk, financial supervision, financial transaction, public debt, public sector, third country, withdrawal from the EU

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EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 30.1.2019  COM(2019) 62 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the International Treatment of Central Banks and Public Entities Managing Public Debt with regard to OTC Derivatives Transactions  
 
1.  INTRODUCTION 

The Regulation on OTC derivatives, central counterparties and trade repositories (EMIR) of 4 
July  2012  requires,  inter  alia,  the  central  clearing  of  all  standardised  OTC  derivatives 
contracts, 
the 
implementation of risk-mitigation techniques for those trades which are not centrally cleared. 

the  reporting  of  all  derivatives  contracts 

trade  repositories  and 

to 

According  to  Article  1(4)  of  EMIR,  the  Union’s  central  banks  and  Union  public  bodies 
charged with or intervening in the management of the public debt are exempted from EMIR 
and are therefore not subject to these obligations. 

Under Article 1(6) of EMIR, the  European Commission  is empowered to amend the list  of 
exempted entities  by  way  of delegated acts  if it  concludes,  after analysing the international 
treatment  of  central  banks  and  of  public  bodies  managing  the  public  debt  in  other 
jurisdictions’  legal  frameworks  and  informing  the  European  Parliament  and  the  Council  of 
the results, that the exemption of the monetary responsibilities of those third-country central 
banks  and  public  bodies  charged  with  or  intervening  in  the  management  of  the  public  debt 
from  the  clearing  and  reporting  obligation  and  the  obligation  to  apply  risk-mitigation 
techniques is necessary. 

2.  THE COMMISSION'S PREVIOUS ASSESSMENTS 

The Commission has carried out two reviews of the international treatment of central banks 
and  other  public  bodies  charged  with  or  intervening  in  the  management  of  the  public  debt 
with regards to OTC derivatives transactions.  

The  first  review  concerned  the  legal  frameworks  in  Japan,  Switzerland,  the  United  States, 
Australia, Canada and Hong Kong and concluded in 20131 that Japan and the United States 
fulfilled  the  conditions  for  the  central  banks  and  public  bodies  responsible  for  the 
management of the public debt in those two jurisdictions to be added to the list of exempted 
entities in Article 1(4) of EMIR2.  

The  second  review  concerned  the  legal  frameworks  of  Australia,  Canada,  Hong  Kong, 
Mexico,  Singapore  and  Switzerland  and  concluded  in  20173  that  all  those  jurisdictions 
fulfilled  the  conditions  for  the  central  banks  and  public  bodies  responsible  for  the 
management  of  the  public  debt  in  those  jurisdictions  to  be  added  to  the  list  of  exempted 
entities in Article 1(4) of EMIR4.  

3.  THE CURRENT ASSESSMENT 

This assessment is triggered by the United Kingdom’s notification on 29 March 2017 of its 
intention  to  withdraw  from  the  Union  pursuant  to  Article  50  of  the  Treaty  on  European 
Union.  When  Union  law  ceases  to  apply  to  and  in  the  United  Kingdom,  the  exemption  for 
Union Central Banks and public bodies charged with or intervening in the management of the 

1 The results of the review were the subject of a report adopted on 22 March 2013, COM(2013)158 final. 
2 Commission Delegated Regulation (EU) No 1002/2013 of 12 July 2013 amending Regulation (EU) No 648/2012, OJ L 279, 
19.10.2013, p. 2. 
3 The results of the review were the subject of a report adopted on 2 March 2017, COM(2017)104 final. 
4 Commission Delegated Regulation (EU) 2017/979 of 2 March 2017, OJ L148, 10.6.2017, p.1. 

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public debt in Article 1(4)(a) of EMIR would no longer apply to the United Kingdom central 
bank or public debt management bodies. 

Until the United Kingdom’s withdrawal from the Union, EMIR, including its provisions on 
the clearing and reporting obligations and risk-mitigation techniques, is directly applicable in 
the  United  Kingdom.  As  part  of  the  European  Union  (Withdrawal)  Act  2018,  the  United 
Kingdom on 26 June 2018 incorporated the provisions of EMIR into UK domestic law with 
effect from the date of the United Kingdom’s withdrawal from the Union. To address failures 
or  deficiencies  arising  from  the  incorporation  of  EMIR  into  UK  domestic  law,  the  United 
Kingdom will amend5 or has already amended6 the Financial Services and Markets Act 2000 
(the  "FSMA")  and 
transferring 
law 
responsibilities  and  tasks  conferred  on  the  Commission  or  the  European  Securities  and 
Markets  Authority  (“ESMA”)  to  the  Treasury  or  other  UK  authorities.  The  assessement  in 
this report is based on this legal framework.   

incorporating  EMIR,  e.g. 

the  UK  domestic 

4.  PROGRESS OF OTC DERIVATIVES MARKETS REFORMS 

Clearing obligation 

According  to  the  draft  UK  domestic  law  incorporating  EMIR,  the  obligation  to  clear  OTC 
derivatives  transactions  would  be  maintained.  The  clearing  obligation  would  in  principle 
cover  all  OTC  derivative  transactions,  with  similar  exemptions  as  those  applicable  under 
EMIR.  

Reporting obligation 

Under  the  draft  UK  domestic  law  incorporating  EMIR,  the  obligation  to  report  all  OTC 
derivative  transactions  would  be  maintained,  including  the  rules  describing  which  of  the 
counterparties  has  the  responsibility  to  report  the  transaction  and  what  information  is  to  be 
reported. 

Risk-mitigation techniques 

The draft UK domestic law incorporating EMIR would maintain in place the rules concerning 
the  use  of  risk-mitigation  techniques  required  for  non-centrally  cleared  OTC  derivative 
transactions, including the rules on timely confirmation of trades, portfolio reconciliation  and 
procedures for dispute resolution.  

5.  INTERNATIONAL TREATMENT OF CENTRAL BANKS AND PUBLIC DEBT 

MANAGEMENT BODIES 

Clearing obligation 
According  to  the  draft  UK  domestic  law  incorporating  EMIR7  the  UK  and  certain  foreign 

5 The Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 adopted on 13 
November 2018 (SI 2018 No. 1184); The trade repositories (Amendment and Transitional provision) (EU Exit) Regulations 
2018  adopted on 6 December 2018 (SI 2018 No. 1318) 
6 The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional 
Provision) (EU Exit) Regulations 2018, draft published for consultation on 22 October 2018. 
7 The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional 
Provision) (EU Exit) Regulations 2018, draft published for consultation on 22 October 2018. 

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central banks and other public bodies charged with or intervening in the management of the 
public debt would be exempted from the application of the clearing obligation. The Treasury 
would  be  able  to  extend  this  exemption  to  additional  foreign  jurisdictions  by  regulation.  In 
addition,  the  exemption  from  the  clearing  obligation  would  apply  to  the  Bank  for 
International Settlements and certain multilateral development banks and other public sector 
entities owned by central governments.  

Reporting obligation 

As  for  the  clearing  obligation,  the  United  Kingdom  intends  to  exempt  the  UK  and  certain 
foreign central banks and other public bodies charged with or intervening in the management 
of the public debt from the reporting obligation. It would be possible to extend the exemption 
to  additional  foreign  jurisdictions.  In  addition,  the  exemption  from  the  reporting  obligation 
would apply to the Bank for International Settlements. 

Risk-mitigation techniques 

According to the draft UK domestic legislation, the UK and certain foreign central banks and 
other public bodies charged with or intervening in the management of the public debt would 
be exempted from the obligation to apply risk-mitigation techniques to non-centrally cleared 
OTC  derivatives  transactions.  The  Treasury  would  be  able  to  extend  the  exemption  to 
additional foreign jurisdictions. The exemption would apply also to the Bank for International 
Settlements  and  to  certain  multilateral  development  banks  and  other  public  sector  entities 
owned by central governments.  

6.  CONCLUSION 

The legislative framework implementing the OTC derivative reforms agreed in Pittsburgh in 
2009  will  be  in  place  in  the  United  Kingdom  after  its  withdrawal  from  the  Union  if  the 
announced  legislation  comes  into  force.  The  draft  UK  domestic  legislative  framework 
incorporating  EMIR  exempts  the  UK  and  certain  third-country  central  banks  and  public 
bodies charged with or intervening in the management of public debt from the clearing and 
reporting  obligations  and  the  obligation  to  apply  risk-mitigation  techniques.  The  draft  UK 
legislative framework also includes provisions which enable the extension of the exemption 
to the central banks and public debt management bodies of other foreign countries. 

Adding  the  UK  central  bank  and  public  debt  management  bodies  to  the  list  of  entities 
exempted  from  the  scope  of  EMIR,  will  exempt  their  monetary  responsibilities  from  the 
scope  of  EMIR  and  promote  a  level-playing  field  in  the  application  of  EMIR  reforms  with 
regard  to  transactions  with  central  banks  across  jurisdictions.  This  will  also  contribute  to 
greater international coherence and consistency. 

The  Commission  therefore  concludes  that  Article  1(4)  of  EMIR  should  be  amended  to 
exempt from the scope of EMIR the UK central bank and other public bodies charged with or 
intervening in the management of public debt. 

The comparative analysis in this report is not exhaustive. It is based on the UK domestic law 
incorporating EMIR, parts of which are not yet fully adopted.  

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The  Commission  will  continue  to  review  on  a  regular  basis  the  international  treatment  of 
central  banks  and  public  bodies  as  regards  OTC  derivatives  in  third  countries,  including  in 
the  third  countries  listed  in  Article  1(4)  of  EMIR.  The  list  of  exempted  entities  may  be 
updated  in  light  of  the  development  of  the  regulatory  arrangements  in  third  countries  and 
taking  into  account  any  relevant  new  sources  of  information.  Such  reassessment  could  also 
lead to removal of third countries from the list of exempted entities.  

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