Guidance Notes for EMIR related questions

In order to aid in the completion of the customer due diligence forms, we have set out some guidance notes below. These Guidance Notes are provided for information only and do not constitute legal advice. To the extent required, Convera recommends that applicant consults with its legal advisers to ascertain how best to answer the various questions. Convera does not accept any liability to any person for the information which is provided in these Guidance Notes.

Q1: Are you a “financial counterparty” or a “non-financial counterparty” as defined by EMIR?

There are two main categories of counterparty for the purposes of EMIR, namely, financial counterparties and non-financial counterparties. To confirm whether you are a “financial counterparty”, you will need to confirm if you fall into one of the following categories:
a. an investment firm authorised in accordance with Directive 2014/65/EU of the European Parliament and of the Council;
b. a credit institution authorised in accordance with Directive 2013/36/EU of the European Parliament and of the Council;
c. an insurance undertaking or reinsurance undertaking authorised in accordance with Directive 2009/138/EC of the European Parliament and of the Council;
d. a UCITS and, where relevant, its management company, authorised in accordance with Directive 2009/65/EC, unless that UCITS is set up exclusively for the purpose of serving one or more employee share purchase plans;
e. an institution for occupational retirement provision (IORP), as defined in point (1) of Article 6 of Directive (EU) 2016/2341 of the European Parliament and of the Council;
f. an alternative investment fund as defined in point (a) of Article 4(1) of Directive 2011/61/EU, which is either established in the Union or managed by an alternative investment fund manager (AIFM) authorised or registered in accordance with that Directive, unless that AIF is set up exclusively for the purpose of serving one or more employee share purchase plans, or unless that AIF is a securitisation special purpose entity as referred to in point (g) of Article 2(3) of Directive 2011/61/EU, and, where relevant, its AIFM established in the Union; or
g. a central securities depository authorised in accordance with Regulation (EU) No 909/2014 of the European Parliament and of the Council. If you do not fall within any of the above categories and you are not an individual, you are likely to be a “non-financial counterparty” (defined by EMIR as an undertaking which is established in the European Union and which is not a financial counterparty).

Q2: If you are a non-financial counterparty, are you above or below the EMIR clearing threshold?

To assess whether it is above the clearing threshold, an applicant which is a non-financial counterparty will need to confirm whether it has entered into FX Derivative contracts with an aggregate notional value that exceeds €3 billion.

Where an applicant has exceeded this €3 billion threshold (which is calculated every 12 months) by reference to the aggregate month-end average position for the previous 12 months, it will have passed the clearing threshold such that enhanced obligations apply under the EMIR regime.

When calculating whether the clearing threshold has been passed, positions held by all non-financial entities in the applicant’s consolidated corporate group should be included, regardless of whether the entities are located within the EU; essentially, if a group company is a nonfinancial counterparty, or would be classed as a non-financial counterparty if it were established in the EU, its positions should be included in the calculation. The calculation should also include swaps entered into between affiliated entities within the group. Applicant should exclude any positions used for hedging purposes, defined broadly to mean contracts that are used to cover risks arising from the potential change in the value of assets or liabilities, or the potential indirect impact on the value of assets or liabilities resulting from fluctuations of interest, inflation or FX rates or credit risk. If a hedging contract qualifies for hedge accounting under IFRS, it is considered hedging for the purposes of EMIR.

The calculation of the clearing threshold is complex and should be carefully considered by all applicants. Legal advice should be obtained in cases of uncertainty. If an applicant which is a non-financial counterparty chooses not to conduct this calculation, it will be treated as being above the Clearing Threshold and enhanced obligations under the EMIR regime will apply.

Q3: Please provide your Legal Entity Identifier (LEI)

Applicant must supply Convera with its unique code for reporting purposes. Under the EMIR regime, obtaining, reporting and maintaining this code is mandatory for any firm wishing to transact in FX derivative contracts. A list of LEI issuers in each jurisdiction is available here: https://www.gleif.org/en/about-lei/get-an-lei-find-lei-issuing-organizations