The extraterritorial effect of new financial regulation is a controversial issue, fundamental to the business of banks, brokers, funds and their clients. A consultation paper containing proposed rules on certain extraterritorial issues arising out of the European Market Infrastructure Regulation (EMIR) was recently published. On the whole, it does not amount to a ‘territory grab’. For derivative trades, non-EU entities guaranteed by EU entities or transacting through EU branches will fall within the scope of EMIR. Further details of the proposed new rules are set out below.

Extraterritoriality -

Under EMIR, over-the-counter (“OTC”) trades executed outside the EU are already subject to “extraterritorial” clearing, reporting and risk-mitigation requirements1 when one party is established in the EU and the other is not. Such requirements necessitate clearing, reporting and risk mitigation by the EU counterparty, but non-EU counterparties will be affected indirectly due to their EU counterparty’s regulatory obligations, because it is not possible to clear or report only half a transaction.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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