Activity

The Active Account Requirement (AAR), introduced by EMIR 3, is indeed one of the most significant shifts in the EU’s derivatives clearing landscape. Let’s break down the key aspects you’ve highlighted and provide further context:
Core Obligation of the AAR:
* Who is in scope? Financial Counterparties (FC+) and Non-Financial Counterparties (NFC+) that are already subject to the EU clearing obligation.
* What’s required? These in-scope entities must:
* Maintain an active account at an EU CCP.
* Clear a “representative number” of trades through that EU CCP.
Derivatives Covered by the AAR:
* The AAR’s scope is specific, focusing on derivatives deemed to be of “substantial systemic importance” to the EU financial system:
* Interest rate derivatives denominated in euro (EUR).
* Interest rate derivatives denominated in Polish zloty (PLN).
* Short-term interest rate derivatives denominated in euro (EUR).
Clearing Threshold Assessment for AAR:
* The AAR only applies if the clearing threshold is exceeded for the specific categories of derivatives listed above.
* Group-wide assessment: For counterparties that are part of a group subject to consolidated supervision in the EU, the assessment of whether the relevant clearing threshold is exceeded for AAR purposes is done on a group-wide basis. This includes derivative contracts cleared by third-country entities within the group, excluding intragroup transactions.
* Application to EU entities only: Crucially, even if the group-wide assessment triggers the AAR, the obligation itself only applies to the EU entities within that group.
Operational Requirements and Timeline:
* Notification: In-scope entities must notify ESMA and their competent authority as soon as they become subject to the AAR.
* Account Establishment: They then have six months from becoming subject to the obligation (or from the entry into force of EMIR 3 for those already in scope on that date) to establish and operationalize an account with an EU CCP. For entities already in scope as of December 24, 2024 (EMIR 3’s entry into force), this deadline was June 25, 2025.
* “Representative Number” of Trades: The precise definition and methodology for clearing a “representative number” of trades is being fleshed out in Regulatory Technical Standards (RTS) drafted by ESMA. ESMA submitted draft RTS to the European Commission by June 25, 2025, detailing these operational and representativeness conditions. These RTS are expected to become applicable later in 2025. Initial indications from ESMA’s consultations suggest a baseline of at least five trades per key subcategory annually, unless this exceeds 50% of total volume, in which case one trade suffices. Larger firms with over €100 billion in notional clearing volume outstanding may face more frequent assessments (e.g., a one-month reference period for 25 trades).
* Penalties for Non-Compliance: Yes, penalties will apply for non-compliance with the AAR. These can include administrative penalties or fines.
Impact on Corporate Users of Derivatives:
* Limited immediate impact for most corporates: As you rightly point out, most corporate users of derivatives will not immediately feel the impact of the AAR because few will fall within the FC+ or NFC+ classification (i.e., exceed the clearing thresholds). The obligation primarily targets larger financial institutions and the most active non-financial counterparties.
* Long-term risk and strategic considerations for treasurers: Despite the limited immediate impact, corporate treasurers using cleared derivatives for their EU entities should indeed keep a close eye on changes to the EU clearing regime. The EU’s explicit goal is to shift clearing activity to EU CCPs.
* Potential for increased costs or difficulty: There is a longer-term risk that the EU could make clearing on non-EU CCPs more difficult or costly, potentially through regulatory or policy measures beyond the AAR.
* June 2028 equivalence expiry: The June 2028 expiry date of the EU’s temporary equivalence decision for UK CCPs is a critical date to monitor. While the current indefinite recognition of EU CCPs in the UK offers some symmetry, the EU’s stance on UK CCPs after 2028 remains subject to future decisions.
* Strategic review: For corporate treasurers whose EU entities are significant users of cleared derivatives, it would be prudent to review their clearing arrangements and relationships with EU CCPs, even if they are not immediately in scope for the AAR, to prepare for potential future shifts in the clearing landscape. This might involve exploring options for increased clearing with EU CCPs proactively.

Video courtesy of Escrow.com

Video courtesy of Escrow.com