EMIR 3 Published in the Official Journal of the European Union

The EMIR 3 Regulation and Directive have been published in the Official Journal of the European Union and will enter into force on December 24, 2024. The EMIR 3 Regulation amends the European Market Infrastructure Regulation and applies from December 24, 2024, except for the amendments to the calculation of the clearing thresholds for financial counterparties and non-financial counterparties which will only apply once the related technical standards enter into force. The EMIR 3 Directive amends the Directive on Undertakings for the Collective Investment in Transferable Securities, the Capital Requirements Directive and Investment Firm Directive. Member States must transpose the EMIR 3 Directive into national laws and bring those into force by June 25, 2026. This aligns with the implementation date for CRD VI.

The EMIR 3 Regulation makes changes across the cleared and uncleared derivative markets, including, but not limited to:

• New exemptions from the clearing obligation for OTC derivatives (i) that are initiated and concluded as the result of an eligible post-trade risk reduction exercise; and (ii) with a third-country pension scheme arrangement that meets certain conditions.
• Making permanent the exemption from bilateral margin requirements for single-stock options and equity index options.
• New requirements for initial margin models validation for in-scope counterparties.
• Allowing clearing members and their NFC clients to post letters of credit (referred to as bank guarantees or public guarantees) as collateral, provided that they are unconditionally available upon request within the liquidation period.
• Reducing the burden for EU CCPs seeking authorization or an extension of an authorization, including improving the functioning of the college system and sharing of information through a central database.

The EMIR 3 Regulation also brings into force the controversial mandate for EU counterparties to hold "active accounts" at EU CCPs for some products and for counterparties trading over a certain threshold in those products to clear some products through an EU CCP. This is intended to incentivize the development of clearing in the EU and reduce exposures to and usage by EU entities of third-country CCPs. The European Securities and Markets Authority is currently consulting on the proposed technical standards that will detail the scope and operation of the active account requirement.

The EMIR 3 Directive amends the CRD and IFD to reinforce the new active account requirement, including by requiring credit institutions and investment firms to: (i) have robust governance arrangements to manage the concentration risk arising from exposures towards CCPs; and (ii) develop plans and targets to monitor and address concentration risk arising from exposures to CCPs offering services of substantial systemic importance. A competent authority will be empowered, where it considers that there is excessive concentration risk arising from exposures towards a CCP, to require the firm to reduce exposures towards that CCP or to realign exposures across their clearing accounts in accordance with the EMIR 3 active account requirement. The EMIR 3 Directive also amends the UCITS Directive, which imposes regulatory limits on counterparty risk for OTC derivative transactions, irrespective of whether the derivatives have been centrally cleared. The EMIR 3 Directive removes those counterparty risk limits when the counterparties clear through CCPs that are authorized or recognized under EMIR.

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