Will the revision of EMIR, which is supposed to limit over-dependence on English CCPs, be hijacked by the particular and exceptional economic circumstances? One might think so. The document published on December 7th suggests that the proposed amendments may not be the ones that would provide more transparency. We should not respond to a particular problem with general measures and mix things up. Political pressure does not explain everything. To change EMIR refit would be to take three steps backwards after having taken three steps forwards. Let's not be fooled by good idea at first sight.
The revision of EMIR was initially intended to limit dependence on Anglo-Saxon CCP’s. But finally, because of the energy crisis and the commodity boom, it could be transformed and aim at other purposes. We can only regret that political pressure and an exceptional situation affecting a minority of companies producing or trading in energy could pollute the whole debate and affect the rules applicable to all. We can fear that after the disclosure of the proposed amendments, one at least will hurt treasurers: the withdrawal of the reporting exemption for inter-company OTC derivatives transactions. This exemption, which had to be sought and obtained, was the great victory of EMIR refit. Removing it would be counterproductive and would be the equivalent of going backwards (i.e., the three steps forward two steps backwards processions). In addition to adding an unnecessary administrative burden (i.e., inter-company transactions being simply mirrored and cancelled in consolidation), it would impose on those who benefited from the exemption and had delegated their reporting to their banks to no longer benefit from it. Indeed, the banks would not be able to report inter-company transactions. Moreover, re-decentralizing the management of hedges to avoid inter-company transactions is not a feasible, reasonable, and efficient option from a financial and cost point of view.
We are therefore obliged to strengthen the lobbying to take advantage of the year and a half (roughly speaking) ahead of us to change the position of the EU. This will not be easy. However, we must fight to avoid this pitfall, this unexpected setback and create a competitive disadvantage in Europe compared to Asia or the USA. There is also talk of reviewing the definition of "hedging" in the context of the collateralization exemption (exemption if hedging or if below the thresholds of 1 or 3 billion EUR equivalent). This is again not a good idea. Treasurers and their European association (EACT) believe that these two points at least should not and cannot be changed without affecting day-to-day management or imposing investments in time, resources, and systems to comply.
Life is not a smooth ride when it comes to financial regulations. We are never at the mercy of unwanted or desirable changes that can affect our work as treasurers. Fortunately, the EACT has been doing its utmost for 20 years to defend the interests of its members and their profession. It will have once again the opportunity to demonstrate this. But the road will be steep and delicate. Let's have courage!
François Masquelier, CEO of Simply Treasury – Luxembourg 2022
This article was prepared by François Masquelier in his personal capacity. The opinion expressed in this article are the author’s own and do not necessarily reflect the view of the European Association of Corporate Treasurers (i.e., EACT).