EMIR

At the 2009 G20 summit in Pittsburgh, the heads of state and government of the leading industrial nations decided as a result of the fallout from the financial crisis in 2008 to increase the transparency and stability of over-the-counter (OTC) derivatives trading. The G20 decided, among other things, that standardised OTC derivative contracts would in future have to be cleared through central counterparties and that OTC derivatives would have to be reported to trade repositories.

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) entered into force on 16 August 2012. It regulates derivatives trading in the EU, the authorisation of central counterparties which are domiciled in the EU and the recognition, in the EU, of central counterparties that are domiciled in third countries.

Moreover, it regulates trading in OTC derivatives which are subject to clearing, reporting and risk mitigation obligations. OTC derivative contracts must be cleared through a central counterparty. The central counterparty serves to minimise risk by assuming the settlement risk of the counterparties to a derivatives transaction. Derivatives contracts must be reported to either a trade repository that is authorised in the EU or to one that is recognised in the EU.

The EMIR imposes requirements on the parties to derivative transactions. Certain requirements apply irrespective of whether or not the entities provide financial services. The Regulation distinguishes between financial counterparties and non-financial counterparties. Pursuant to Article 2(8) of the EMIR, financial counterparties encompass all investment firms under the Banking Act, credit institutions, asset management companies, reinsurance companies, UCITs and their management companies, institutions for occupational retirement provision and alternative investment funds managed by authorised or registered alternative investment fund managers (AIFMs).

For the purposes of the Regulation, all other entities established in an EU/EEA country are classified as non-financial counterparties.

The three main obligations under the EMIR are clearing, reporting and risk mitigation. These obligations cannot be viewed separately and apart from one another due to the numerous interconnections between them.

Irrespective of whether or not a contract was executed at a trading venue, the EMIR applies to the derivative contracts mentioned in points (4) to (10) of Section C of Annex I of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments. The obligation to make reports to trade repositories concerns all derivatives (exchange-traded and OTC derivatives).

The above-mentioned Regulation does not have to be transposed into national law because it will apply directly in Liechtenstein when the relevant decisions of the EEA Joint Committee to incorporate it into the EEA Agreement take effect. Under national law, all that has to be enacted are supplementary provisions concerning the competent authority and its powers, as well as provisions for penalties and provisions requiring non-financial counterparties to comply with the EMIR. For these purposes, Liechtenstein has enacted the EMIR Implementation Act (EMIR-Durchführungsgesetz). This will take effect simultaneously with the entry into effect of the decision of the EEA Joint Committee on the adoption of Regulation (EU) No. 648/2012.

Regulation (EU) No. 648/2012 is currently the subject of EEA adoption proceedings. You can check the current status of the adoption procedure by clicking on the following link.