Citi 2018 FinReg Outlook

Global OTC Regulation: The Evolution Continues This year will be a transition period for derivatives regulation, as policymakers review key components of EMIR and Dodd-Frank. A cornerstone of the post-financial crisis regulatory framework is greater oversight and transparency of the world’s Over-The-Counter (OTC) derivatives markets. Following the roadmap set out by the G20, policymakers enacted regulations that introduced elements such as central clearing, variation margin requirements, and reporting obligations. With the regulatory framework largely in place, policymakers are now taking a moment to assess what they have built. This is not part of a deregulatory push, as derivatives regulation remains core to policymakers’ beliefs. Rather, it is a matter of ensuring the framework is working as intended, and assessing if any areas could be improved. This assessment has led policymakers on both sides of the Atlantic to determine there are some elements of the new derivatives rules that could be fine-tuned. EUROPE: ROAD TO EMIR 2 Last year, policymakers began the process of updating Europe’s OTC derivatives rules with proposed changes to the European Market Infrastructure Regulation (EMIR). The revisions are designed to make EMIR more efficient and lessen the administrative burden on firms, without weakening the financial stability aspects of the rules. One area of focus is the scope of EMIR. Under the proposals, Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund Managers Directive (AIFMD) management companies will become responsible for the reporting conducted on behalf of funds they manage. Meanwhile, pension funds are granted another three-year exemption from the EMIR clearing obligations. Another key proposal is to simplify the EMIR reporting obligations. Firms would no longer have to meet back loading requirements, which involved reporting outstanding transactions prior to 2014. The revisions also propose that central counterparties become responsible for reporting on behalf of the trading parties for all exchange-traded derivatives. The proposed amendments to EMIR are being debated between the European Commission, Council, and Parliament. Some elements are likely to change during this negotiation process. For example, there are differing opinions on how to simplify the reporting on exchange-traded derivatives. Once all parties agree on a final proposal, the changes can progress. This means it will likely be 2018 or early 2019 before any updates come into effect. SEAN TUFFY Head of Market and Regulatory Intelligence, EMEA, Custody & Fund Services EMEA Americas 43 42 Citi Custody & Fund Services – FinReg Outlook 2018