22 January 2013

EACT/Raeburn: Is the European Parliament really challenging EMIR?

A Reuters story today by Huw Jones is fascinating as much for what it does not say as for what it does. In essence what is being reported is that the European Parliament may be preparing to reject some of the EMIR rule-making by ESMA. The story revolves around the interests of the real economy and the effectiveness of the exemption under EMIR from central clearing. There are references to fuel hedging by airlines, to there being a view within the Parliament that the clearing thresholds have been set too low and to the single asset class breach triggering clearing for all asset classes.

Some of us started to argue over three years ago that there should be an exemption for the real economy from the proposed regulatory approach on derivatives; at the beginning of the campaign we were opposed by every institution from the CFTC in Washington to the Commission and Parliament in Brussels. Whilst I will always be the first to recognise that the latter two were – to their credit – eventually prepared to listen and to change their positions, a huge amount of time and energy was spent to get us where we are today.

With the key exception of the asset class breach rules I consider the outcome in EMIR and the rule-making by ESMA to be essentially sensible and reasonable. I have no idea who is leading this initiative in Parliament – and the Reuters sources are of course anonymous. It would be mealy-mouthed to respond with a sigh, suggesting nonetheless that better late than never can still apply; but it would have been so much better if the EU institutions as a whole had been as sensitive to the interests of the real economy when they started to develop the original EMIR proposals.

We are where we are and I for one would rather that we could now move on to focus our energies on the various other financial regulatory initiatives that have implications for the real economy. Were it not for the continuing concern over the asset class breach rules I would consider debate over the arithmetic level of the clearing thresholds to be of academic interest only. Legitimate risk mitigation through derivatives was never intended to be caught and counted against any clearing threshold. But the issues around asset class breaches do complicate things and it would have been so much better if ESMA had been able to take on board the concerns expressed to them.

We’ll have to watch Parliament carefully, not least because the real economy seems to have some unexpected friends there. So what Reuters reports is probably good news even if its substance will surely mean that the whole implementation process of EMIR is even more protracted.

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