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Regulators in both the US and Europe are now reviewing their rules with an eye to making them more efficient and less complex. By recognizing what works well and what could work better, the objective is to make the regulatory framework stronger and reduce the excessive burdens that discourage trading, investment and hedging.
In the European Union (EU), one part of this process has been effected via a review of the European Market Infrastructure Regulation (EMIR). According to the European Commission (EC), the aim is to “eliminate disproportionate costs and burdens to small companies” that might impede their access to markets, without putting financial stability at risk.
The EC has already proposed a number of possible changes to EMIR that go some way to meeting this objective. However, ISDA believes certain other, targeted modifications would further strengthen the framework, create greater certainty for derivatives users, and eliminate remaining areas of complexity. This paper outlines some of those proposed modifications.
Continual evaluation and assessment of complex pieces of regulation are vital if they are to work smoothly and efficiently. This is particularly true in financial markets, where small errors and inaccuracies can have major unintended consequences. ISDA welcomes the proposals made by the EC in its EMIR review to ease the cost and compliance burdens on end users.
However, these proposals can be taken further in some areas to bring greater benefit to the market. There is room to provide further efficiency in clearing, reporting and margin rules, without diluting the intention of the EMIR framework to combat systemic risk. Tackling complexity and unnecessary costs and burdens in the rules would further encourage trading, investment and hedging.