Not all EU country regulators agree on what a ‘derivative’ is for EMIR reporting purposes
The EU regulator of financial derivatives ESMA has sent a letter to the European Commission on Friday asking for clarification of the derivatives definition under the EMIR (European Market Infrastructure Regulation). According to the press release, the lack of EU wide harmonization might have an adverse effect on the consistency of implementation of EMIR.
The ESMA asks the commission to address the letter with urgency as it considers that the issue greatly undermines the regulatory framework. Until the European Commission comes out with the requested clarification, companies across the EU are not required to report under the provisions by the EMIR FX forwards with a settlement date up to 7 days and FX forwards that are concluded for commercial purposes.
The rift regarding the implementation of FX derivatives reporting has been opened between European regulators last week. The first divergence has been spelled by Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF) regulatory body, which has postponed mandatory reporting on the day EMIR reporting kicked in. The motives? – Lack of clarity over the contracts’ derivatives definition.
The second rift is opened by none other, but the FCA that conforms to the view and states that FX forwards are not derivatives contracts according to MiFid definitions. As a result, the UK regulator is denying to enforce FX forwards reporting. The whole development is putting the forex brokerage industry into a state of confusion. Spread betting in the UK for example are regulated under a completely different set of tax-exempted gaming activities.
Same goes for the binary options providers – while CySEC and Malta are regulating them as financial services, the UK is approaching the matter as it does with gaming companies. Unfortunately we are in for another episode of European bureaucratic divergence and lack of consensus – that’s only extending unnecessary uncertainty over the industry.
For the full press release visit ESMA’s website.