ALFI provides feedback to the European Commission on the EMIR 3 Review

ALFI provided feedback to the EC measures to further develop the EU’s CMU to make EU clearing services more attractive and resilient, supporting the EU’s open strategic autonomy and preserving financial stability (COM(2022) 697 final alias 2022/0403 (COD)).
ALFI expressed gratitude to the EC for the opportunity to provide feedback on this clearing package, which consists of a regulation and a directive, following a targeted consultation in March 2022. The perspective of investment funds was taken into account while drafting the response, focusing mainly on the main proposals regarding the clearing mechanism and corresponding capital charge, rather than the CCP governance aspects.
ALFI supports the proposed amendments for Article 17 MMFR and Article 52 UCITSD, which limit the risk exposure on OTC derivatives to transactions that are not cleared by a CCP. ALFI welcomes the simplification of the applicable regime and the clearing exemption for transactions entered into with a PSA established in a third country exempted from the clearing obligation under its national law. The new calculation formula is also welcomed, where only contracts not cleared at a CCP should be included.
However, ALFI does not support mandated Active Accounts as the decision on the selection of CCPs should be left at the discretion of clearing firms in the best interest of their clients. The mandate to ESMA to determine thresholds for the triggering of active accounts remains too broad, with no criteria on how these thresholds should be selected. Important considerations require a detailed impact assessment, such as limited liquidity on existing EU CCPs, extensive operational constraints in ensuring onboarding for clearing, subsequent clearing, and the costs of maintaining a dual clearing and operationalizing active accounts for buy-side firms and their clients.
ALFI also suggests that the provision of information to clients is a minor extension of the existing FRANDT framework. Reference to the FRANDT principles would be appreciated as their actual application by both CCPs and clearing members would clarify the available supply of services.
ALFI supports the proposal to review the eligibility criteria for hedging NFC transactions recognition. ALFI suggests excluding physically settled FX transactions (forwards and swaps) used for hedging purposes, particularly when hedging UCITS share classes denominated in foreign currency, where currency risk hedging is recognized. Finally, ALFI highlights the exchange of IM in the meaning of Article 11(15) EMIR, for the 6th and last phase (phase 6) of UMR, as a relevant yet unaddressed item.
In sum, ALFI supports measures that streamline clearing processes in the EU. However, the proposed active account scheme is not aligned with the objectives of the clearing package, as it does not ultimately make EU clearing more attractive and may not be advantageous for investors. Therefore, concerns are presented, and a careful assessment of the impact of the proposal for active accounts is recommended. Additionally, this response is an opportunity to reintroduce ALFI’s suggested proportionality approach to the exchange of Initial Margins in specific circumstances.