MFA and AIMA Submit Letter to ESMA on Contracts Having a Direct, Substantial and Foreseeable Effect within the EU

MFA and the Alternative Investment Management Association (AIMA) submitted a letter to the European Securities and Markets Authority (ESMA) in response to a consultation paper on “Draft Regulatory Technical Standards on contracts having a direct, substantial and foreseeable effect within the Union and non-evasion of provisions of EMIR.”  In the letter, MFA and AIMA asked ESMA to clarify that a fund is “established” in a third country for purposes of Article 13 of EMIR, if that party is subject to the rules of that third country’s regime.  The term “established” is important because a party’s compliance with a third country’s equivalent regulations will be deemed compliant with EMIR if it or its counterparty is “established” in the relevant third country.  In addition, MFA and AIMA:

  1. Recommended that ESMA use the existence of a guarantee of a contract beyond objectively-defined thresholds as the basis to  measure the direct, substantial and foreseeable effect of that contract within the EU;
  2. Agreed with ESMA that it is not necessary for ESMA separately to evaluate the direct, substantial and foreseeable effect of contracts of third country subsidiaries, if those contracts are subject to sufficient guarantees provided by their EU-established parent entities;
  3. Supported ESMA’s proposal to use a criteria based, non-prescriptive test to determine evasion; and
  4. Suggest that ESMA propose a clear and simple test for evasion based on the ‘primary purpose’ of a contract, taking account of the way it was concluded.