EMIR and UK EMIR: Same Rules, Different Accents

If you thought Brexit meant we could all burn our EU law textbooks and start fresh, think again. Derivatives traders in London still live under the watchful gaze of EMIR (that’s the European Market Infrastructure Regulation, not a villain from a Marvel film) – only now there’s also a UK spin-off known, with great imagination, as “UK EMIR.”

Both were born out of the 2008 financial crisis, when regulators looked at the carnage in the derivatives market and decided, “Never again.” The idea behind it was to make the market more transparent, stop systemic risk from spiralling, and ensure counterparties don’t treat credit risk like an optional extra.

So, what does this mean in practice for corporates and funds? Grab a strong coffee – this isn’t light bedtime reading, but it’s essential survival kit for anyone dabbling in swaps, forwards, or anything that looks suspiciously like a derivative.

Who’s in the Firing Line?

Financial counterparties (FCs):
These are the big beasts of the financial world: banks, insurers, pension schemes, investment funds (both UCITS and AIFs), and investment firms. They spend their days up to their necks in the derivatives market, so regulators assume they could trigger the biggest mess if things go wrong. As a result, they get the full set of EMIR obligations – reporting, clearing, margining, the lot.

Non-financial counterparties (NFCs):
Then we have everyone else: corporates outside the financial sector, usually using derivatives to hedge everyday risks – an airline locking in fuel prices, exporters hedging currency, a manufacturer protecting their margins or a retailer fixing borrowing costs.

Their obligations depend on size:

• NFC-: If your total derivatives exposure stays below certain thresholds, you face only the lighter obligations (mainly just reporting and a few sensible risk checks).
• NFC+: Tip over those thresholds and you’re bumped up into the heavyweight category, with mandatory clearing and collateral rules to match.

It’s a kind of regulatory Goldilocks test: too small and you’re left alone, too big and you’re wrapped in red tape, “just right” and you still have to file reports but at least your compliance officer won’t be hyperventilating.

Derivatives on the Radar

If it walks, talks or quacks like a derivative, EMIR probably thinks it is one.

The regulatory net is cast wide – covering trades done bilaterally over the counter (OTC), to those executed on regulated exchanges. The rollcall includes:

• Interest rate swaps (steadying your loan costs).
• Credit default swaps (insurance against credit events).
• Equity derivatives (tied to share prices).
• Foreign exchange derivatives (managing currency wobbles).
• Commodity derivatives (oil, gas, metals, you name it).

Even those supposedly run-of-the-mill FX forwards used in everyday treasury operations have been roped in, after years of regulators arguing about whether they should count. Spoiler: they do. An FX forward, in case you’re not living in treasury world, is just an agreement to buy or sell a currency at a set price on a future date – the corporate equivalent of booking your holiday euros early to avoid the rate tanking the day before you fly. And that’s the point: the very instruments companies rely on to keep day-to-day business steady, like FX forwards and interest rate swaps, now sit under the same regulatory umbrella as the flashier structured products dreamed up in Canary Wharf.

Core Compliance Obligations

This is the part that makes compliance officers twitchy: the rules everyone wishes were shorter but can’t be ignored.

Reporting
First up, every single derivatives contract is expected to be logged with a trade repository by the next working day. Regulators want the full picture of who’s trading what, not because they’re nosy (well, maybe a bit), but because it helps them spot the risks before they snowball. Most corporates delegate this job to their bank or broker, but if the data is wrong, it’s still your problem when the regulator comes calling.

Clearing

For some standard trades – like major-currency interest rate swaps – EMIR says they have to be cleared through a clearing house (or “CCP”, if you’re trying to impress at dinner). The clearing house is the serious middleman, there to stop one firm’s wobble from bringing everyone else down with it. Financial firms and NFC+ corporates are in; smaller NFC- corporates are out, until they grow too big for their boots, that is.

Uncleared trades
Not everything can go through a clearing house, and EMIR doesn’t give you a free pass. You still need good housekeeping: confirm the trade quickly, check your books match your counterparty’s, shrink down offsetting trades where you can, and have a plan for disputes. If you’re a financial firm or an NFC+, you’ll also be posting collateral (cash or assets) to prove you can pay. This is usually the bit everyone grumbles about, because it drains liquidity and generates mountains of paperwork.

Thresholds
And finally, corporates need to keep an eye on their overall derivatives positions. Breach a threshold (say, interest rate swaps) and you’re treated as NFC+ across the board. It’s like failing one subject at school and being told to repeat the whole year.

Practical Compliance Considerations

On paper, EMIR looks tidy enough. In practice, it’s more like juggling paperwork with one hand while answering margin calls with the other. Here’s how it tends to show up in real life:

Corporates

For most companies, derivatives are just a way to keep the lights on without nasty surprises. The real grind isn’t deciding why to use them – it’s chasing the admin trail they leave behind: checking your bank has actually filed the reports, nudging confirmations that have gone missing, and keeping records that will survive a regulator’s raised eyebrow. It’s less about exotic finance and more about making sure the boring bits get done – because when they don’t, that’s when trouble starts.

Funds
Funds have no such wiggle room. They’re in the full-fat EMIR camp from the start: reporting, clearing, and collateral on uncleared trades. The part that really bites is collateral. Margin calls have a habit of arriving at the worst possible moment, and managers need enough liquid assets on hand to meet them without tanking the portfolio. Add in the endless negotiations over what counts as “eligible collateral,” and it’s no wonder many fund managers joke they’ve become part-time operations staff.

Cross-border players
And then there are firms unlucky enough to straddle both the UK and EU. That means two regulators, two repositories, and the occasional head-scratcher when the same deal looks different depending on which side you report it to. For now, the regimes look similar, but it’s only a matter of time before they drift apart. Smart firms already treat them as cousins rather than twins – related, but each demanding its own set of paperwork, and patience.

Supervisory and Enforcement Landscape

Regulators don’t see EMIR as background noise – they’ve been dishing out fines, and plenty of them. Reporting slip-ups are their favourite hunting ground: missed fields, valuations that don’t quite add up, or trades that mysteriously vanish when they’re amended or closed. None of it sounds headline worthy, but that’s exactly why firms keep tripping up.

And no one is immune. Banks, funds and corporates have all found themselves writing cheques for mistakes that seemed trivial at the time. The logic from the regulators is simple: if they can’t trust reporting, they can’t see what’s really happening in the market.

So, while EMIR won’t set your pulse racing, ignoring it will – usually when the enforcement notice lands.

The Last Word

Nobody’s cracking open EMIR for a fun evening read. But like it or not, it keeps the market honest. Without it, risks would build quietly until the fallout becomes everyone’s problem.

The trick is not to treat EMIR as a one-off project. It’s a habit. The firms that fold it into everyday routines – checking reports, keeping an eye on exposures, and not leaving it all to the bank – are the ones who sleep easier when the regulator comes knocking.

It won’t ever be glamorous, but that’s the point. In derivatives, dull is often the safest place to be.