ESMA Guidelines

EMIR Refit is expanding scope of derivatives reporting and now includes Crypto derivatives reporting.

ESMA has provided guidelines on reporting of derivatives on crypto-assets as part of EMIR Refit guidelines so it is now clear that crypto derivatives are required to be reported removing any ambiguity. A new field is introduced by the regulator to identify such derivatives. Scope of reporting is expanded to only those derivatives on crypto-assets that fulfil the definition of ‘derivative’ or ‘derivative contract’ under EMIR. For the reporting of the details of derivatives, counterparties should rely on the regulatory framework that is applicable. Therefore, if the derivative on a crypto-asset is considered as a financial instrument under MiFID, it should be reported in accordance with its features as part of MiFIR as well. In case where a counterparty enters a derivative contract with a crypto-asset as the underlying, it should populate the field 2.12 ’Derivative based on crypto-assets‘ with ’True’ as part of the derivative report counterparty will submit to a EMIR Trade Repository.
Please note a separate crypto regulation is being developed by ESMA so this guidance is expected to evolve and it is expected that EMIR reporting requirements for crypto derivatives will be expanded with further clarity. Because of the ongoing developments in regulation that are currently being discussed about the crypto-assets, ESMA has decided when drafting the ITS and RTS on reporting not to include any detailed requirements with regard to the reporting of derivatives based on crypto-assets until there is further developed and coherent regulation. This is the reason why ESMA has decided only to include in the RTS on reporting an additional field ’Derivative based on crypto-assets‘ in order to be able to assess the trading volumes and outstanding risk as well as to analyse how these instruments are reported. Therefore, a new underlying category of assets would not be compliant with the ITS on reporting. Similarly, it would be erroneous and not future-proof to e.g. require that all derivatives on crypto-assets should be reported as commodity derivatives.
Regarding how to report the currency fields for the derivatives based on crypto-assets, ESMA recalls that the currency fields only allow for currencies listed on ISO 4217 Currency Codes. Therefore, these fields should not be populated with so-called crypto-currencies. Under RTS on reporting there is only obligation to report the field ’Derivative based on crypto-assets‘ with a boolean format for these derivatives on crypto-assets that fulfil the definition of derivatives under MiFID, filling in the fields related to currencies with a value converted to one of the listed ISO 4217 currency codes. With regards to indices and baskets based on crypto-assets, the reporting does not differ from other types of derivatives. The counterparties should report the name of the index as well as, if available, its ISIN and/or 4-letter code indicating the index. In the case of baskets, counterparties should report only those components that are financial instruments traded on a trading venue.
A most common instrument traded in the market is Crypto CFDs, these now will be reportable so firms need to put in place infrastructure to report. So in conclusion, if your firm is a doing any crypto based derivatives, you are in scope now and need to start thinking about reporting.

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