|Luis Gabriel Morcillo||Sebastian Boada Morales|
On August 6 2015, the European Securities and Markets Authority adopted a set of draft regulatory technical standards (DRTS) (not yet in force) implementing the clearing obligation of OTC derivatives products under the European Market Infrastructure Regulation (EMIR). This clearing obligation has important extraterritorial effects that affect derivatives counterparties located in Colombia and other jurisdictions other than EU member states (TCEs).
The DRTS establish the classes of the OTC derivative contracts that are subject to the clearing obligation under the EMIR and define four different categories of counterparties for which different phase-in periods apply. There are important issues that TCEs located in Colombia, and other jurisdictions, need to consider in order to avoid disruptions in their dealings with European member counterparties.
TCEs should first determine: (i) which of the four categories they belong to; and (ii) which category their EU member counterparty belongs to. This will determine the dates on which the clearing obligation will apply to transactions between them. As a practical matter, TCEs defined as financial institutions may wish to execute the ISDA EMIR Classification Letter that will enable them to notify their relevant counterparties of their status for clearing and other regulatory requirements under the EMIR.
TCEs must also take into consideration requirements imposed when dealing with counterparties located in jurisdictions other than EU member states. TCEs will be caught by the extraterritorial application of the EMIR when dealing with other TCEs if: (i) the contract has a 'direct, substantial and foreseeable effect within the EU'; or (ii) 'where such obligations are necessary or appropriate to prevent the evasion of any provisions of' the EMIR.
In cases where the clearing prescription applies to the relevant TCE, its transactions will have to be cleared with an EU-established CCP authorised under the EMIR, or a third country CCP recognised under the EMIR, which is established in an 'equivalent' jurisdiction. However, there is one notable exception to the clearing mandate under the EMIR: if an equivalence decision is taken by EU authorities regarding Colombia, then compliance with Colombian rules on clearing will be deemed compliant with the EMIR. To date, Colombia has not made an application and no other jurisdiction has received a favourable equivalence determination under the EMIR clearing mandate; thus, unless a successful application is made, Colombian TCEs will be obliged to comply with the EMIR, provided the above-mentioned conditions are met.
Luis Gabriel Morcillo and Sebastian Boada Morales