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EMIR refit?

As all of you know, the corporate treasury associations in Europe, through EACT, have lobbied hard in order to get rid of the intercompany reporting, one of the major remaining issue on EMIR.

EACT has proposed to exclude from reporting obligation all intragroup transactions where at least one counterparty involved is a non-financial counterparty (NFC). The proposal following the Commission’s recognition that intragroup transactions involving NFC’s do not contribute to the famous systemic risk, they initially pointed out. Conversely, central treasury and centrally managed intragroup transactions and hedging improve companies risk management. The idea is to mirror internal transactions to external ones and/or to net total exposures to reduce the total volumes to hedge. At the end of the day it doesn’t bring any additional risk to the whole market. It simply reduce risks at the company level. These intercompany transactions do not generate additional risks as they are intended to re-organize the risks at the level of the MNC’s. What really counts is the total transactions dealt with external counterparties. Centralization of treasury operations is a best practice applied by large MNC’s to better control group exposures and reduce costs of hedging. It is a virtuous approach which is penalized by the current EMIR provision on intercompany transactions. It doesn’t make sense and is somehow counterproductive for MNC’s. When netted, group operations will enable treasurers to reduce total amount of hedging to be negotiated with banks. It makes sense to centralize expertise, systems, efficiency of processes and to net exposures at a central level. We thought our role was to reduce further risks and costs at group level and therefore to contribute to mitigate systemic risks. This unexplained EMIR provision was a collateral impact of the global financial crisis caused by banks and a deficient financial system. Obviously it doesn’t bring less risks and doesn’t give better information to ESMA.

Furthermore, we need to keep in mind that NFC’s represent only 2% of the outstanding volume of the OTC derivative market in the EU, measured by the notional amounts dealt. What are we talking about? And even all these external transactions between banks and NFC’s or corporates are certainly not representing a real “systemic risk” for the economy.

Therefore, (1) if the provision related to intercompany reporting is removed, (2) if the tainting rule for the breach of threshold in a class of assets is not applied anymore and (3) if the concept of hedging keeps being applied and the hedging instruments are not included in the threshold calculation, I do believe the corporates will have obtained the best they could have expected from EMIR2.

I think that we at EACT have done our best to impose these changes or maintain these interpretations all corporates were waiting for. It shows how important the role of treasury associations can be with such financial regulations. In my opinion, it is worth to remind it to our members. They need to know that a team is working hard to defend the interests and to mitigate the administrative burden regulations could cause.

François Masquelier, Chairman of ATEL and Vice-President of EACT

November 2017, Luxembourg

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