MFA Submits Letter to European Commission Regarding ESMA's Final Draft Regulatory Technical Standards

MFA submitted a letter to the European Commission ("EC") expressing concerns with ESMA's final report on draft regulatory technical standards related to the phase-in of the clearing and frontloading obligation for interest rate swaps under EMIR.

MFA stated that, although it supports the EC's efforts both to improve the functioning of European financial markets by implementing derivatives reforms and to provide a "thoughtful approach" to central clearing, it has concerns with the phase-in approach for the interest rate swaps ("IRS") clearing obligation as well as the frontloading obligation for IRS, both provided by ESMA in its "Draft technical standards on the Clearing Obligation – Interest Rate OTC Derivatives."

With respect to phase-in, ESMA provided a threshold-based approach to divide alternative investment funds ("AIFs") into two categories with two different phase-in dates for purposes of commencing clearing in the European Union. In the letter, MFA described the "ambiguities and practical difficulties" that would result from a threshold-based approach, and the effect on the frontloading obligation. Accordingly, it urged the EC:

• not to apply ESMA's threshold-based approach and, instead, to include all AIFs in the same category for purposes of the clearing phase-in and frontloading obligations;
• provide a 12-month phase-in period for the combined category of AIFs; and
• eliminate the frontloading obligation for all entities in that combined category.

See: MFA Letter to EC. Related news: ESMA Publishes Draft Technical Standards and Consultation on Clearing (October 2, 2014).