An article published by Euroclear has asked whether investment funds and insurance companies will be ready to comply with European Market Infrastructure Regulation (EMIR) rules in time for the extended deadline?

The new regulatory requirements mean that most derivative trades have to be cleared through central counterparties (CCPs), while cleared and uncleared over-the-counter (OTC) derivatives must be fully collateralised and reported to trade repositories. EMIR came into force in 2012 and is currently being incorporated into regulation.

But pension, mutual and other investment funds and insurers – known as the buyside – are experiencing significant difficulties in complying with EMIR's requirements. These include a lack of in-house processing structure, expertise and time. The European Securities and Markets Authority (ESMA) has pushed back the deadline for mandatory derivatives clearing to mid-2016 at the earliest.

The article states that, while market participants are already seeing the increased risk management benefits, there is increased complexity of the workflow and process costs in addition to a very tight deadline in which to adapt and comply. Many buyside investors say they are 'discouraged' about their future in derivatives trading and Euroclear states that:

“a poll of the 550 delegates at the Euroclear Collateral Conference, in Brussels in May 2014, revealed that one in five considered that buyside participants were still so unprepared for EMIR that they would move away from derivatives entirely and look instead for alternative instruments.”

In fact, many investment institutions believe that even the extended mid-2016 deadline still doesn't give them enough time to get ready for compliance.

Euroclear concludes: “On the outside, the EMIR debate continues to centre on the precise implementation date, yet inside the industry is wondering what might be coming next. It is apparent that the scope of EMIR is likely to expand to cover other asset classes and transaction types resulting in further evolution of the trading landscape and collateral management requirements.”

The article can be read in full here.