Esma faces tough task in implementing Emir 3.0

Trilogue negotiators might be patting themselves on the back for finally coming to an agreement on the latest iteration of the European Market Infrastructure Regulation, known as Emir 3.0, but for one EU regulator the real work is just about to begin.

As part of the regulatory package, the European Securities and Markets Authority (Esma) has been handed a litany of tasks littered with hurdles, but with no additional resources to carry them out.

The regulator has been given six months following Emir 3.0 entering into force to come up with draft regulatory technical standards that set out the active accounts’ thresholds – ultimately determining how much euro-denominated derivatives clearing is relocated to the bloc.

As EU commissioner Mairead McGuiness’s regulatory equivalence deadline for UK clearing houses remains as June 30, 2025, it may leave firms little time to prepare for the requirements coming into force. 

Considering also that the final text has yet to receive approval from the European Parliament and Council before entering the EU’s Official Journal and being translated into the bloc’s 24 languages, June next year is ambitious. 

If EU regulators were to decide that Esma needs more time to calibrate the thresholds, it would require a change to a level one text – essentially repeating the process that has just taken place to agree the Emir 3.0 text. Such an amendment is made even more unlikely given the EU is about to elect a new parliament and commission, which could make reaching a consensus even more difficult. 

After that six-month period to calibrate the active account requirement, Esma will have a further 12 months to evaluate whether the regulation has been successful in reducing European firms’ exposures to systemically important tier-two clearing houses, such as the London branch of LCH and Ice Clear Europe.

What’s unclear is how Esma should measure this effectiveness goal. The trilogue text didn’t define what effectiveness means, so it will be up to Esma to create some sort of metric to evaluate the progress of the regulation.

As part of the joint monitoring mechanism, which includes the European System of Central Banks and the European Systemic Risk Board, Esma will also be responsible for overseeing the development of the active accounts requirement in the EU. 

Esma will provide a report to the commission on the progress of the regulation, accompanied by an impact assessment and a cost-benefit analysis. Based on that report, the EC may then decide to introduce a new legislative proposal. 

All of this must be done without an increase in funding to manage the regulator’s ongoing supervisory powers, as well as its new responsibilities. 

How this all will play into the overall timeline for the roll-out of Emir 3.0 is yet to be seen, but Esma will have its work cut out to keep up. 

Editing by Lukas Becker