CySEC Addresses FX Inconsistencies with EMIR Reporting


It is perhaps not surprising that only a few days after the coming into effect of the reporting obligation under the EMIR that problems and issues requiring further clarifications arise. The reason for this is that the endeavour was very challenging and demanding to begin with, as is always the case when any kind of structured and all encompassing regulation is attempted to be implemented across all the EU Member States, given that usually the EU allows considerable leeway on who certain things are being interpreted by the competent authority in each individual country.

The debacle in relation to the EMIR reporting obligation this time concerns the fact that counterparties are obliged to report all derivatives transactions, alas without having a crystal clear definition on what constitutes a derivative. This has forced the European Securities and Market Authority, the ESMA, to address a letter on 14 February 2014 to the European Commission, requesting a clarification on the treatment of certain categories of financial instruments, in terms of whether these types of contracts should be classed as derivatives and thus be reported on.

What is crucial is that pending the response from the European Commission, there is a suspension of the relevant provisions of the EMIR in relation to the “problematic” types of contracts, which are specifically:

  • FX forwards with a settlement date up to seven days.
  • FX forwards concluded for commercial purposes.
  • Physically settled commodity forwards.

As highlighted in a circular addressed on 18 February 2014 by the Cypriot regulator CySEC to its regulated entities, i.e. the Cyprus Investment Firms and UCITS Management Companies the convergent and uniform application of the EMIR across the EU is prevented by the absence of a single, commonly adopted definition of what a derivative and a derivative contract is, across the European Union, due to the “different transposition of European Directive 2004/39/EC (MiFID) across Member States.”

Further to alerting the entities under its jurisdiction that for the specific contract types the EMIR obligations are currently suspended, CySEC also draws their attention to the fact that in order to report to a Trade Repository in a way that complies with EMIR requirements a unique code, the LEI1 is necessary in order to make the identification of each reporting counterparty possible. Identifying that several of its regulated entities appear to be facing difficulties in obtaining a LEI code on time, CySEC advises them to temporarily report their transactions without a LEI, instead of not reporting at all, expressing the conviction that most Trade Repositories will be in a position to accept such reports where the LEI is not recorded.

The CySEC circulars concludes by drawing the attention of its regulated entities to the fact that ESMA has made certain amendments to its questions and answers on the implementation of the EMIR. CySEC makes particular reference to a change according to which only individuals that are not carrying out an economic activity and who are consequently not considered as undertakings are not subject to the reporting obligation, and not all individuals as was the case prior to this particular amendment.

It seems that the quest for transparency, accountability and uniformity in the regulatory framework and the inherent system of checks and balances for the financial services industry, which is the aim of the EMIR and other similar attempts, is bound to be a long, bumpy and eventful ride.

Adjustments, re-adjustments and revisions, as well as other “teething problems” are to be expected. Here at we will remain vigilant of any further developments and report on the matters as they unfold.