Guidance to readiness: joint newsletter by DNB and the AFM to assist the implementation of EMIR 3

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This joint newsletter provides guidance on the updated requirements that EU financial counterparties (FCs), non-financial counterparties (NFCs), central counterparties (CCPs), clearing members providing clearing services and clients providing clearing services (CSPs) face under the European Market Infrastructure Regulation (EMIR). Amongst others, this newsletter includes guidance on the active account requirement and on initial margin models in light of the pending applicability of the respective ESA Regulatory Technical Standards (RTS).

Published: 30 January 2025

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Background and scope

DNB and the AFM are designated as competent authorities for EMIR. On 4 December 2024, EMIR 3 was published in the Official Journal of the EU and entered into force on 24 December 2024, see link. EMIR 3 aims to improve the attractiveness of EU cleared markets, enhance the resiliency of the EU clearing system and to reduce excessive reliance on third-country CCPs. To that end, EMIR 3 introduces new requirements for EU FCs and NFCs active in derivatives as well as for CCPs and CSPs.

This newsletter provides guidance on several new requirements in EMIR 3, it does not intend to provide an exhaustive summary. This guidance is applicable to institutions under the direct supervision of DNB and the AFM regarding EMIR.

Guidance on the active account requirement for FCs and NFCs (articles 7a and 7b EMIR)

EMIR 3 requires FCs and NFCs that are subject to the clearing obligation and exceed the clearing thresholds in the (aggregated) categories of derivative contracts identified in Art. 7a (6), to hold an active account at a CCP established and authorised in the EU. In accordance with Art. 7a (1) counterparties shall notify ESMA and the national competent authority (NCA) when they become subject to the active account requirement (AAR). This notification is to be performed by completing and submitting the ESMA template (linklink, and link) to ESMA and the relevant account supervisor by 24 June 2025. Notifications pertaining to active accounts by credit institutions, insurers and pension funds need to be submitted to DNB. Active account notifications by Mifid II firms, UCITS, AIFs and NFCs need to be submitted to the AFM.

ESMA is currently in the process of finalising its draft RTS on the conditions of the AAR, see link. While the RTS still have to be finalised, the relevant level 1 provisions are considered self-standing and institutions are expected to implement the relevant level 1 provisions to the greatest extent possible. This means ensuring to hold an account at an EU established and authorised CCP and ensuring operational readiness, including legal documentation, IT systems, and internal processes associated with active accounts.

DNB and the AFM acknowledge that implementing the active account requirements before the final draft RTS become applicable may lead to double implementation costs for institutions. Therefore, in relation to the requirements in Art. 7a and 7b of EMIR 3 that fully depend on the finalisation of the RTS, DNB and AFM will not prioritise supervisory or enforcement action, without prejudice to the two paragraphs above, until the relevant RTS have entered into force.

Guidance on initial margin model validation for FCs and NFCs (article 11 (3, 12a) EMIR)

EMIR 3 requires counterparties to apply for authorisation and validation of the model used for initial margin calculation. DNB and the AFM will follow EBA's opinion (see link) that any supervisory or enforcement action in relation to the processing of applications for initial margin (IM) model authorisation received will not be prioritised, until the relevant RTS have entered into force. Existing IM models remain in use following the entry into force of EMIR 3. FCs and NFCs currently subject to the requirement to exchange initial margin in accordance with EMIR and Art. 36 of the joint ESAs RTS on uncleared OTC derivatives (link) are required to seek authorisation as soon as they implement any model change (including recalibrations) to their existing IM models, regardless of its materiality.

Until EBA establishes its central validation function, counterparties should submit the application to their relevant account supervisor. If more than one legal entity in a group is applying, a joint application should be sent, covering all the legal entities of the group using that IM model. Please note that significant credit institutions ought to liaise with the ECB regarding Art.11 on risk mitigation techniques for non-cleared derivatives, e.g. the authorisation of initial margin models.

Guidance on clearing activity in non-EU CCPs for clearing members and clients (article 7d EMIR)

Art. 7d states that EU clearing members and clients that clear contracts through a third-country (TC) CCP recognised under Art. 25, shall annually report information on TC- CCP clearing activity to its NCA. Given that ESMA is developing RTS to further specify the content of the information to be reported, the first reporting by counterparties is expected to take place one year after the entry into force of EMIR 3.

Guidance on transparency for CCPs and CSPs (article 38, (6,7 and 8) EMIR

CCPs:

According to Art. 38 (6) and (7) CCPs shall provide to clearing members 1) information on initial margin models, incl. add-ons, and 2) a margin simulation tool under different scenarios. Until the relevant RTS have entered into force, CCPs should update their documentation to include methodologies for any add-ons. In addition, CCPs should continue using IM simulation tools as they stand since EMIR REFIT and should offer, in addition to the margin simulation based on current market scenarios, a simulation of their margin requirements based on the ESMA 5th CCP Stress Test scenarios.

CSPs:

According to Art. 38 (8), CSPs shall provide their clients with information on point (a) to (d) of that provision. Until the relevant RTS have entered into force, CSPs should provide information to their clients in line with points (a), (b) and (c). Regarding point (d), CSPs should be able to leverage the information already provided by CCPs and facilitate access to CCP margin simulation tools to meet the Level 1 requirements, while differentiating and identifying any additional margin required by the CSP additional to the CCP.

Until the relevant RTS have entered into force, CSPs should provide margin simulation tools based on the same scenarios as for the CCPs – i.e. current market conditions and ESMA 5th CCP Stress Test scenario.

More information on the AFM website.