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Financial and non-financial counterparties are subject to a variety of regulatory obligations under EMIR, but the extent of compliance depends on their categorization under the EMIR taxonomy. The classification also determines whether and when the EMIR clearing obligation applies. The ISDA EMIR Classification Letter allows counterparties to bilaterally communicate their status by answering a series of questions.
“The first clearing mandates in the European Union are expected to come into force in 2016, so it’s important that derivatives users know and communicate their classification status to their counterparties in advance. The ISDA EMIR Classification Letter allows each party to quickly and easily notify its counterparties on a bilateral basis,” says David Geen, ISDA’s General Counsel.
The clearing categorization component of the letter initially covers interest rate derivatives only. Final draft regulatory technical standards on the interest rate swaps clearing obligation were submitted by the European Securities and Markets Association to the European Commission for endorsement in October 2014. It is intended that the letter will be expanded in the future to cover other classes of products that may become subject to the clearing obligation.
ISDA developed the Classification Letter as a bilateral version of the classification tools that currently exist on ISDA Amend, an online service jointly developed by ISDA and Markit. The online service includes the EMIR Counterparty Classification Tool and the EMIR Clearing Classification Tool. The bilateral version can be used by parties that do not subscribe to ISDA Amend.