On 9 December 2019, the European Securities and Markets Authority (ESMA) published its second annual report on the supervisory measures and penalties imposed by Member State competent authorities (NCAs) under the European Market Infrastructure Regulation (EMIR).
The report covers the period from January to December 2018 with a focus on NCAs’ supervisory measures and enforcement action, their powers and the interaction between NCAs and market participants when monitoring compliance with the following EMIR requirements:
- the clearing obligation for certain over-the-counter (OTC) derivatives (Article 4 EMIR);
- the reporting obligation of derivative transactions to trade repositories (Article 9 EMIR);
- requirements for non-financial counterparties (Article 10 EMIR); and
- risk mitigation techniques for non-cleared OTC derivatives (Article 11 EMIR).
ESMA observed that some supervisory areas are highly harmonised, such as the sources of information used by NCA’s to check compliance with EMIR requirements, the NCA’s competences, and their available supervisory and enforcement tools. It also found that supervisory practices are evolving, moving away from an initial focus of raising awareness to greater efforts towards making better use of the information available for supervisory purposes.
However, the report also identifies areas that remain to be a supervisory challenge to NCAs, for example examining trading patterns to identify strategies designed to exploit regulatory arbitrage that can result in the circumvention of EMIR requirements, such as the clearing obligation. ESMA also urges further cooperation among NCAs and closer analysis in areas such as supervision of counterparties below the clearing threshold and of third country entities trading in OTC derivatives with significant impact in the European Union.
During the reporting period, the number of NCAs conducting investigations were as follows:
- 18 regarding reporting requirements;
- 8 into risk-mitigation techniques;
- 6 into the clearing obligation; and
- 4 into non-financial counterparties.
ESMA notes that around 10% of NCAs issued recommendations or sent warning letters to market participants, although no new sanctions or penalties were imposed on supervised entities.