CSSF Circular 23/846 on ESMA Guidelines on EMIR reporting

CSSF Circular 23/846 adopting the ESMA guidelines on reporting under EMIR:
29 April 2024 deadline is approaching for Luxembourg counterparties to derivatives 

On 1 December 2023, the CSSF published Circular 23/846, which integrates the ESMA guidelines on reporting under EMIR (“EMIR Reporting Guidelines”) into CSSF’s administrative practice and regulatory approach. The EMIR Reporting Guidelines were published on 23 October 2023. 

The EMIR Reporting Guidelines provide guidance and clarifications on certain aspects of the revised EMIR reporting obligations and standards for counterparties in the context of the entry into force on 29 April 2024 of the “EMIR Refit Reporting Technical Standards”¹. CSSF Circular 23/846 and the EMIR Reporting Guidelines also apply as from 29 April 2024.

Which entities are concerned by CSSF Circular 23/846?

CSSF Circular 23/846 applies to Luxembourg financial counterparties (“FC”) and non-financial counterparties (“NFC”) to derivatives under EMIR (i.e. derivative contracts as defined by EMIR with a cross-reference to MiFID II) for which the CSSF is the competent authority in accordance with the EMIR Law, which includes (but is not limited to) Luxembourg credit institutions, investment firms, UCITS and AIFs and, where applicable, their UCITS Mancos/AIFMs (“In-Scope Entities”). 

As regards UCITS/AIFs, the definition of FC under EMIR captures:

• All UCITS (unless set-up exclusively for the purpose of serving employee share purchase plans), and where relevant their UCITS ManCo;
• Most  AIFs (unless set-up exclusively for the purpose of serving employee share purchase plans or qualified as securitisation SPV under AIFMD), including more specifically (i) all EU AIFs irrespective of their regulated/unregulated status and of the jurisdiction of their AIFM (including EU AIFs managed by non-EU AIFMs), and (ii) non-EU AIFs managed by an EU authorised or registered AIFM, and where relevant their EU AIFM.

What does CSSF Circular 23/846 require and by when?

• As from 29 April 2024 compliance with EMIR revised reporting requirements is mandatory for In-Scope Entities when reporting to a trade repository (“TR”) (i) any new derivative contract entered into, modified or terminated after 29 April 2024 and (ii) any change or termination after 29 April 2024 of existing derivative contracts irrespective of when the derivative that is modified or terminated was concluded;
• By 26 October 2024 (180 days after 29 April 2024) update of the reports submitted to a TR before 29 April 2024 is mandatory for In-Scope Entities in respect of all outstanding derivative contracts that do not require any modification or a termination report. 

According to the CSSF, any failure to report accurately as from 29 April 2024 is considered as a violation of Article 9 of EMIR, exposing In-Scope Entities to possible administrative sanctions by the CSSF. 

What should In-Scope Entities know in particular?

Here are some of the key points of attention for In-Scope Entities (with an emphasis on delegation): 

1. Reportable products: Forward FX contracts are reportable under EMIR while spot FX contracts are not.
2. Reporting obligation with regards to the parties involved in the trade

• Derivatives within the same legal entity (e.g. between two desks or between two branches of the same entity) should not be reported under EMIR as they do not involve two counterparties. 
• Qualification of funds as FC: as regards funds and in particular when an AIFM manages EU AIFs and non-EU AIFs, the AIFM should establish whether the AIF qualifies as an FC. 

3. The allocation of responsibility for reporting for UCITS/AIFs (only for OTC derivatives)

• Responsibility of UCITS ManCos/AIFMs: UCITS ManCos/AIFMs have all relevant details available in their respective roles so they will be responsible for the reporting obligation of the UCITS/AIFs they manage.
• Derivative contract between (i) a UCITS/AIF FC and (ii) an NFC below the clearing threshold (“NFC-") : Where a UCITS/AIF that qualifies as an FC enters into an OTC derivative with an NFC-, the UCITS ManCo/AIFM is responsible and legally liable to report the OTC derivative on behalf of the UCITS/AIF, and the UCITS/AIF is responsible and legally liable to report the OTC derivative on behalf of the NFC- (Article 9 1a of EMIR: FC shall be solely responsible for reporting on behalf of NFC-). 

4. Delegation of reporting: 

• Entity responsible for reporting (“ERR”) and report submitting entity (“RSE”): besides the allocation of responsibility, counterparties subject to the reporting obligation may contractually delegate their reporting obligation, which includes any task (individually and separately) related to the reporting of data. 
• Responsibility of ERR: responsibilities with regards to data completeness and accuracy, e.g. update of LEI, and generally the responsibility for the content of the report remains in case of delegation always with the ERR. The delegating counterparty (the ERR) should provide the RSE with all the details of the derivative in a timely manner, and remains responsible for ensuring that those details are correct. ERR are also responsible to notify competent authorities in case of significant reporting issues.
• Written delegation agreement between ERR and RSE: the responsibilities regarding outstanding derivatives should be agreed by the parties and covered by the delegation agreement.
• Delegation to non-EU entity: EU counterparties should carefully assess any risks that might be posed to their compliance with the reporting obligations in case of delegation of reporting to a non-EU RSE.

The CSSF provides additional information and reminds the specific points of attention to be considered by In-Scope Entities for the proper implementation of EMIR revised reporting requirements as from 29 April 2024, including in particular in CSSF Communiqué of 26 March 2024 and previous CSSF Press Release 22/33.