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14 May 2019

ISDA Explanatory Note on Application of EMIR REFIT to Alternative Investment Funds

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ISDA has prepared an explanatory note to provide a high-level, factual overview of the effect of these changes, including the extent to which these changes might impact upon non-EU based alternative investment funds.

 AIFs that are newly caught by the extended FC classification will be required to comply with a number of additional obligations under EMIR. This includes the clearing obligation (unless they are considered a “small FC”), margin requirements for uncleared OTC derivatives, trade reporting (as amended by the EMIR REFIT) and changes to the obligations under certain of the other risk mitigation requirements based on EMIR classification.

Subject to the exclusions in respect of AIFs set up exclusively for the purposes of serving one or more employee share purchase plans or AIFs that are SSPEs, non-EU AIFs that are managed by an AIFM authorised or registered under the AIFMD will remain directly caught by EMIR as FCs and therefore directly subject to the relevant obligations under EMIR.

With the changes to the FC definition in relation to AIFs in mind, fund managers should reassess any AIFs that they manage in order to verify their categorisation under the new EMIR REFIT Regulation and be ready, where applicable, to immediately notify ESMA of their FC or “small FC” categorisation on the day the EMIR REFIT Regulation enters into force. It is also likely that counterparties to AIFs will be revisiting counterparty status representations from those AIFs to ensure that they remain accurate after the EMIR REFIT takes effect.

Where a change in counterparty classification of their AIF counterparty(ies) is likely, entities that are subject to EMIR should consider the possible new compliance obligations with respect to the AIF(s) and to establish a line of communication with their AIF counterparty(ies) as necessary. Entities should also consider consulting with their legal advisors, as required.

Full document

© ISDA - International Swaps and Derivatives Association

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