ESMA Consults On Extraterritoriality

The extraterritorial effect of new financial regulation is a controversial issue, fundamental to the business of banks, brokers, funds and their clients. A consultation paper containing proposed rules on certain extraterritorial issues arising out of the European Market Infrastructure Regulation (EMIR) was recently published. On the whole, it does not amount to a 'territory grab'. For derivative trades, non-EU entities guaranteed by EU entities or transacting through EU branches will fall within the scope of EMIR. Further details of the proposed new rules are set out below.

EXTRATERRITORIALITY

Under EMIR, over-the-counter ("OTC") trades executed outside the EU are already subject to "extraterritorial" clearing, reporting and risk-mitigation requirements¹ when one party is established in the EU and the other is not. Such requirements necessitate clearing, reporting and risk mitigation by the EU counterparty, but non-EU counterparties will be affected indirectly due