21 Aug 2015
A number of high-profile real estate bodies have warned that European Market Infrastructure Regulation (EMIR) is placing a “disproportionate operational and legal burden” on Non-Financial Counterparties (NFCs), including many real estate investors, by requiring them to report details of their derivatives to central databases known as trade repositories (TRs), even when these details are already reported by their bank counterparty.
In response to a European Commission (EC) consultation on the unintended consequences on EMIR, several European real estate organisations have urged the EC to simplify the process of trade reporting, particularly for smaller NFCs.
Under EMIR, NFCs are held responsible and legally liable for information that has been reported to the TR on their behalf, even when they have delegated reporting to their bank counterparty. Currently, NFCs have to check that information by registering with one or more TRs and navigating their information systems, which can be extremely complex. This comes at a disproportionate financial and administrative cost, particularly for smaller, occasional users of derivatives.
The organisations argue that this cost could be avoided altogether without reducing the information that regulators receive, by introducing ‘single-sided reporting’. Under such a system, only one party would be required to report trade information and would retain legal responsibility for doing so. They suggest this would be in keeping with the EC’s ‘Better Regulation’ initiative.
If the EC decides that a move to single-sided reporting is not appropriate, the organisations have recommend that it considers providing an exemption to the trade reporting requirement for NFCs, or at the very least make reporting data more freely available so that businesses can check the accuracy of the data that has been reported on their behalf.
Melanie Leech, chief executive of the British Property Federation, commented: “If we want to encourage investment into our urban environment we need to ensure that our regulatory framework is not unnecessarily onerous. Whilst we would not dispute the importance of trade reporting for financial firms, this element of EMIR has created a disproportionate operational and legal burden on many real estate businesses, who use derivatives for sound risk management purposes. It would be a shame to see the Commission pass up this opportunity to make life easier for many businesses at little risk to the financial system.”
Peter Cosmetatos, chief executive of Commercial Real Estate Finance Council Europe, said: “The policy goal of monitoring and managing activity and risk in the financial system can be achieved based on reporting of derivative trades by regulated financial firms. Regulators would lose nothing by relieving non-financial firms from the obligation to report the same transactions, and might even benefit from cleaner data as a result. This should be an easy case of cutting red tape without any policy downside.”
Sue Forster, chief executive of the Investment Property Forum, commented: “The change to single-sided reporting for NFCs (as per Dodd-Frank in the US) would achieve the EU’s stated aims of achieving its objectives at minimum cost to business. Without this change, there is an urgent need to address the issues around NFCs’ continuing liability for reported data. At present, regulators are in a difficult position as any enforcement action risks discouraging firms from engaging in proper risk management or using structured products such as fixed rate or capped rate loans, both of which would be contra to the aims of EMIR.”
Notes to editors
The real estate associations supporting this position include the British Property Federation (BPF), Commercial Real Estate Finance Council Europe (CREFC Europe), the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) and the Investment Property Forum (IPF).