How to use EMIR regulations

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How to use EMIR regulations

Description Learn how Pega CLM uses a KYC Questionnaire to help financial institutions handling EMIR obligations.
Version as of 8.7
Application Pega Client Lifecycle Management for Financial Services
Capability/Industry Area Financial Services



Introduction[edit]

The European Market Infrastructure Regulation (EMIR) is a European Union regulation – introduced in 2012 with Directive 2012/648 – whose goal is to make the Over The Counter (OTC) derivatives market more stable and transparent as well as to reduce systemic risk.

EMIR affects all market participants of a derivative transaction, and from an applicability perspective its geographical perimeter is not limited to counterparties established in EEA1, but it extends also to:

  1. Counterparties whose OTC derivative contracts have a direct, substantial, and foreseeable effect within the EEA.
  2. Non-EEA counterparties entering into OTC derivative contracts with a counterparty established2 in EEA.

EMIR has therefore certain extra-territorial effects whenever there is one of the two EEA nexus indicated above.

1 The European Economic Area (EEA) consists of not only the EU member states (i.e., Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, the Republic of Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden) but also Iceland, Liechtenstein, Norway, and United Kingdom.

The term “established” is to be interpreted as “incorporated”, hence EMIR applies whenever the counterparty is legally incorporated in an EEA country and thus not to branches of non-EEA entities located in an EEA country.

Scope of EMIR regulations supported in CLM[edit]

CLM supports with questionnaires – one for entities and one for individuals – not only the determination of the classification the customer belongs to, but also the three main EMIR obligations:

  • Clearing

Specific OTC derivatives between certain market participants must be cleared via a Central CounterParty (CCP).

  • Risk mitigation

OTC derivatives between certain market participants which are not cleared via a CCP are subject to risk mitigation obligations.

  • Reporting

All derivatives, OTC and non-OTC, must be reported to a trade repository.

Triggers[edit]

Out-of-the-box, CLM triggers the displaying of the EMIR questionnaire when:

  1. The product selected is EMIR eligible3.
    and
  2. The fields about the EMIR products being displayed in the ‘Regulatory details’ step within Enrich stage are answered in a certain way.

The EMIR questionnaire can also be further configured to apply or not apply considering from a jurisdictional point of view both the status of the financial institution offering the product and the customer type as per the following table:

EMIR applicability

The assumption is that the list of products used by the financial institution contains the EMIR flag.

How and where to configure triggers[edit]

You can configure the applicability logic for EMIR questionnaire using the ‘ApplicabilityMatrix’ decision table. For information on general configuration of this rule, see the 'Applicability matrix' section of the implementation guide.

The other important decision logic rule is the ‘ApplyEMIR’ When rule.

EMIR KYC applicability matrix

Implementations based on CLM 8.5 or earlier versions use the ‘ProdRegulationsMasterAppliesWhen’ decision table. This also uses the main decision logic in the ‘ApplyEMIR’ When rule.

EMIR Prod regulations master applies when

You will need to configure the specific EMIR applicability logic for your financial institution in these above-mentioned rules.