Review of European Market Infrastructure Regulation could lead to more reforms, says EU commissioner

Jonathan Hill, European Commissioner for financial stability, financial services and capital markets union was commenting as the European Commission opened its review of the European Market Infrastructure Regulation (EMIR).

Hill said the Commission is "not planning a change to the fundamental objectives of the Regulation" but that it is possible that reforms could stem from the review.

"It does make sense to step back and ask ourselves whether we managed to get everything exactly right all of the time, to see whether there have been unintended consequences," Hill said. "If the evidence does show that the rules are not proportionate to the risks posed by different types of institution, or if there are ways to improve the regulation so it better meets the objective of financial stability, then we should have the confidence to adapt the existing framework."

Hill said the Commission's review will look at whether the EMIR regime strikes "the right balance between reducing risk and enabling growth".

"So far as EMIR is concerned - have we met our objectives of reducing systemic risk and increasing transparency?" Hill said. "Have we achieved this in a proportionate way? Is there scope to reduce costs and burdens for our firms without compromising on our objectives?"

EMIR, which was finalised by EU law makers in 2013, requires all derivatives trades to be reported and for certain derivatives trades to be cleared through authorised central counterparties. Other measures contained in the Regulation are aimed at managing the risks involved in derivatives trading that is not required to be centrally cleared and to encourage central clearing of those transactions.

However, the mandatory central clearing regime is still not fully in place. Hill used his speech in Brussels to announce that the Commission has agreed on "the first clearing obligations" with the European Securities and Markets Authority (ESMA).

"This means the first clearing rules for certain interest rate products might be in place as soon as April of next year, although we have provided for a longer phase-in for different types of counterparties for whom implementation is less straightforward, including a three year delay for non-financial end-users," Hill said.

"I can also confirm that we will soon put in place the necessary extension of the transitional relief for EU pension funds from central clearing. This will provide a further two years to look at possible solutions to the challenges that pension funds face when clearing. But whether that will be sufficient is a topic we would invite comment on as part of this review," he said.

Stephen Woods, a derivatives lawyer at Pinsent Masons, the law firm behind Out-Law.com, said: "The European Commission review of EMIR will be welcomed across the industry and, in particular, by non-financial counterparties below the clearing threshold, having low volumes of derivatives trading, for whom compliance with certain aspects of EMIR, especially trade repository reporting, may appear to be slightly disproportionate to the risks they pose to global financial stability. The outcome of the review will be keenly awaited."