EMIR, non-compliance may be sanctioned in case you have forgotten it

Sanctions for non-compliance with EMIR standards

In France, the AMF (i.e. Supervisor) recently sanctioned (i.e. in January 2020) an institution for non-compliance with the documentation provided under EMIR. As this regulation dated back to 2012, some have almost forgotten it. Yet the recent “EMIR refit” should have reminded their best memories that compliance is important. The fine of EUR five hundred thousand for BRED reminds that Supervisors do not laugh (and rightly so) with compliance with EMIR's rules (see AMF website fines and transactions). Too bad for those who would “take these rules over the leg” (as French use to say). In this case, this French counterparty breached its obligation to have procedures and devices in place to measure and monitor the rapid confirmation of the terms of uncompensated over-the-counter derivatives contracts for breaching the requirement of instant/fast confirmation of transactions. They reported late, or not enough transactions, or too many, or forgot about contract changes, having inadequacies in their statements, erroneous mentions, etc. The list is long of offences. They lacked an ad hoc compliance function in order to regularly monitor EMIR's compliance. It also means that non-financial counterparties for which they have not complied with reporting should also comply. If the bank has not complied with the reporting obligation on behalf of its customers, these customers are in breach and still liable at least until June 2020 (according to new EMIR refit rules).

Reputation risk

In addition to the risk of financial penalties, there is an even greater risk of image and reputation. A bank that does not comply with its regulatory obligations can scare customers away from them. Make sure your bank is compliant with the EMIR standards. There have been few financial penalties to date. But that doesn't mean the risk is limited. To have experienced a control, serious and exhaustive, you must be more than prepared and more than perfect. Having a third-party review, such as a consultant, for its reporting is a "must".

I am always surprised by human nature, which tends to forget too quickly what is heavy, boring and unpleasant (for example, the compliance of European regulations such as “EMIR” and “EMIR refit”). It's far from behind you. Be more than ready and get ready. A fine could taint the treasurer's career and point the finger at him. When few sanctions fall, the one who receives one serves as an example and will be pilloried.

Don't risk your reputation for lack of seriousness and control. Don't believe what your bank tells you, if you charge it with your reporting, at least until you remain responsible for. An annual audit of your compliance and an annual report to the Audit Committee seems to be the minimum to recommend. If you don't, prepare to be put under pressure. Supervisors will be particularly motivated to find wrong makers, as they find or provide little information. Woe to the controlled, they are at risk. Again, as with Transfer Pricing, when the controlled period is over, it is too late, if not impossible, to report what is missing and correct. A reminder sting from time to time does not seem useless or excessive to avoid being pointed.

As seen in this document available on the French Supervisor's website, sanctions fall and hurt. In a 32-page document, the French AMF describes the violations found. It takes away confidence and makes you think. It is therefore important to avoid fines and worse to be indexed and pointed at by the profession. Some supervisors were called to order by ESMA for not having sufficiently controlled the application of EMIR. Let us be sure that they will all strengthen their controls in the coming months.

Fran?ois Masquelier SimplyTREASURY    March 2020