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.