Information to securities market participants regarding EMIR

Due to considerable uncertainty about arrangements if the UK leaves the European Union (EU) without a deal, the possibility of a no-deal Brexit cannot be ruled out. For this reason, the Government of Iceland has launched an information page for anyone doing business or communicating in other ways with the UK.

From the date the UK leaves the EU without a deal, under the existing conditions, the country will be defined as a third country, i.e. a state outside the European Economic Area (EEA) on the basis of European financial market legislation, in relations with Iceland and other EEA States. The effect of this on financial undertakings in the UK and Iceland will naturally depend on the activities of the companies in each case.

The Government’s information page on a no-deal Brexit specifically addresses financial services and the impact on these services if the exit is without a deal. In addition to the information contained there, the FSA wishes to make the following information available to securities market participants:

Impact due to EMIR

The FSA draws attention to the potential impact of Regulation (EU) No 648/2012 of the European Parliament and of the Council OTC Derivatives, Central Counterparties and Trade Repositories. The Regulation came into force with Act No 15/2018 on Derivatives, Central Counterparties, and Trade Repositories.

As previously stated, the possibility exists for the United Kingdom to be defined as a third country (a non-EEA State) on the basis of European financial market legislation, with effect from the upcoming 1 November. This could create legal uncertainty about the OTC derivative contracts concluded by EEA counterparties with UK counterparties. In response to this uncertainty, the European Securities and Markets Authority (ESMA) has agreed to enter into a Memorandum of Understanding with the UK Government, which will authorise UK Central Counterparties (CCPs) to be approved by ESMA with an equivalence decision. The objective of this action is to limit the risk posed by the withdrawal on central clearing and to avoid any negative impact on financial stability in EU. That equivalence decision will take effect if the UK leaves the EU without a withdrawal agreement and will be valid until 30 March 2021.

In addition, ESMA will temporarily authorise the novation of legacy OTC-derivatives, that were not subject to a clearing obligation when the Regulation came into force but would be subject to a clearing obligation if they were entered into today, from UK counterparties to European counterparties without triggering the clearing obligation or bilateral margin requirements.

As for the reporting obligation under EMIR, UK counterparties will, under the existing conditions, no longer be obligated to report their derivative contracts to trade repositories (TRs) after 31 October. Same applies for changes to open derivative trades with UK counterparties. EEA counterparties, including Icelandic counterparties, will therefore need to have TRs flag any derivative contracts made with UK counterparties. After the UK leaves the EU, EEA counterparties will continue to report their derivative trades to TRs as provided for by Article 9 of EMIR, with the exception that reports on contracts with UK counterparties will not be reconciled with the TRs, as the UK part of the reporting is not expected.

If any questions arise concerning the above, market participants are advised of the following email address: emir@fme.is

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