The abbreviation: "NFC+" under the EMIR Regulation denotes a non-financial counterparty (NFC) which has crossed the clearing thresholds and, in conseqence, is subject to:

 

- the clearing obligation (pursuant to Article 10(1)(b) of EMIR), and

 

EMIR margin requirements.

 

The distinction between NFCs+ and NFCs- is also important for EMIR reporting where only NFCs+ (as well as financial counterparties (FCs) are required to report valuation updates and details of collateral posted (as from 11 August 2014).

 

The Committee on Economic and Monetary Affairs of the European Parliament on 26 January 2018:

 

- supported the European Commission’s proposal to restrict the clearing obligation to the class of OTC derivatives for which the clearing threshold has been exceeded,

 

- proposed that NFCs+ should not be subject to segregation and exchange of collateral requirements for other asset classes than the one where the threshold has been breached (Draft Report on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk- mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories (COM(2017)0208 – C8-0147/2017 – 2017/0090(COD)).

 

 
graph   
   NFCs+ in numbers

 



In the ESMA' opinion there are still very large NFCs, NFCs+ whose activity is comparable in size to some important financial counterparties (FC), and which should thus continue to be subject to the same requirements applicable to FCs (ESMA's Letter of 27 January 2017 to the European Commission on the EMIR Review and ESMA sanctioning powers under EMIR and CRAR, ESMA70-708036281-19).

 

Another ESMA's analysis (Commission Staff Working Document Impact Assessment, Accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories {COM(2017) 208 final} {SWD(2017) 149 final}, 4.5.2017 SWD(2017) 148 final, p. 28) identified 43 groups corresponding to the definition of NFC+, which include 424 counterparties.

 

While the number of groups is limited, ESMA indicated that, as an order of magnitude, the typical portfolio size of a group of NFC+ is about five times bigger than the average portfolio of financial counterparties in terms of trade count and 1.5 times bigger in terms of notional amount.

 

Nevertheless, when considering the relative share of their OTC derivatives positions, these NFCs+ represent a notional value of 16% of NFCs notional amount, which is equivalent to 0.32% of the total notional amount.

 

According to ESMA 3rd Annual Report of 8 July 2021 on supervisory measures and penalties under EMIR (ESMA70-156-4563, p. 13):

- around half of the EU countries have NFCs+ (among these countries, seven countries supervise up to five NFCs+ and in six countries there are six or more NFCs+)
- within this group, France, Germany and Luxembourg have the highest number of NFCs+;
- the other 15 states indicated there are no NFCs+ in their jurisdiction.

 

 

  globe   Third-country issues

 

 

 

Pursuant to the European Securities and Markets Authority (ESMA) interpretation if third country entity is part of a group which also includes NFCs established in the European Union, its NFC+ or NFC- status should be assumed to be the same as that of the EU NFCs and this information should be requested from the counterparty.

 

If the third country entity is not part of such a group, but benefits from a similar, limited exemption in its own jurisdiction, it may be assumed that the entity would be NFC- were it established in the European Union.

 

If neither of the above holds, the only way to determine the status of such a third country entity would be for it to calculate its group-level position against the EMIR clearing threshold.

 

EU counterparties might obtain representations from their third country counterparties detailing the NFC's status.

 

The EU counterparty is not expected to conduct verifications of the representations received from the third country entity detailing their status and may rely on such representations unless they are in possession of information which clearly demonstrates that those representations are incorrect.

 

If it is not possible to assess what would be counterparty's status under EMIR, firms should assume that their counterparty status is NFC+ and apply EMIR requirement accordingly.

 

 


 

IMG 0744   Documentation

 

 

 

 

 

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories, COM(2017)208, May 2017

 

Commission Staff Working Document Impact Assessment, Accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories {COM(2017) 208 final} {SWD(2017) 149 final}, 4.5.2017 SWD(2017) 148 final

 

EMIR Regulation, Article 10(1)(b)

 

 

 

 

clip2  Links

 

 

 

 

 

ESMA's Letter of 27 January 2017 to the European Commission on the EMIR Review and ESMA sanctioning powers under EMIR and CRAR, ESMA70-708036281-19

 

Regulatory environment for NFCs+ under EMIR Regulation

 

 

 

 

 

 

 

 

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