EMIR Classification

The EMIR Regulation applies in particular to Financial Counterparties ("FCs") and to Non-Financial Counterparties ("NFCs").

Financial Counterparties (“FC”) are:

• investment firms authorized in accordance with MiFID II (2014/65/EU);
• credit institutions authorized in accordance with CRD IV (2013/36/EU);
• insurance undertakings or reinsurance undertakings authorized in accordance with the Solvency II Directive (2009/138/EC);
• UCITS and, where applicable, their management company authorized in accordance with the UCITS IV directive (2009/65/EC), unless this UCITS is set up exclusively for the purpose of serving one or more employee share purchase plans;
• institutions for occupational retirement provision (IORPs) within the meaning of Article 6(1) of Directive (EU) 2016/2341;
• alternative investment funds (AIFs) that are either established in the European Union or managed by an AIF manager authorized or registered in accordance with Directive 2011/61/EU; unless such AIFs are set up exclusively for the purpose of serving one or more employee share purchase plans, or unless those AIFs are a securitisation special purpose entity;
• central securities depositories authorized in accordance with CSDR Regulation (909/2014).

Note: The status of FCs can be FC+ or FC-.

Non-Financial Counterparties (“NFC”) are: undertakings established in the European Union that are neither financial counterparties, nor central counterparties.

Note: The status of NFC can be NFC+ or NFC-.

The EMIR Regulation treats FCs and NFCs differently depending on whether their OTC derivatives positions are above or below the clearing thresholds expressed in notional value. The obligations of the EMIR Regulation that apply to these counterparties will therefore differ depending on their classification and status.

In order to determine their status, financial counterparties and non-financial counterparties that take positions in OTC derivative contracts have the possibility, once per year, to calculate the average of their end-of-month positions over the last twelve months, aggregated at the group level, and compare it to the following clearing thresholds:

Calculation of positions - Financial counterparties

When the result of this calculation (aggregated at group level) exceeds one or more clearing thresholds, or when the calculation is not performed:

- The financial counterparty is considered to be a FC+ and as such:

• it must immediately inform the ESMA and the relevant competent authority (notification);
• it must establish clearing arrangements within 4 months of the notification;
• it is subject to the clearing obligation for all OTC derivative contracts belonging to any class of OTC derivatives which is subject to the clearing obligation, which are entered into or novated more than four months after the notification (see Part III "Clearing Obligation" below for more details); and
• it is subject to transaction reporting requirements (see Part II "Transactions Reporting"), collateral exchange requirements and various risk mitigation techniques (see Part IV "Risk Mitigation Techniques").

When the result of this calculation (aggregated at the group level) is below all clearing thresholds:

- The financial counterparty is considered to be a FC- (or "SFC") and as such:

• it is exempted from the clearing obligation, o but it remains subject to transaction reporting obligation (see Part II "Transactions Reporting") and collateral exchange obligation (if eligible) as well as other risk mitigation techniques (see Part IV "Risk Mitigation Techniques").

Note: for the calculation of their positions, FCs must take into account all their transactions (for speculative purposes as well as for hedging purposes).

Calculation of positions - Non-Financial Counterparties

Where a non-financial counterparty does not calculate its positions, or where the result of such calculation (aggregated at group level) with respect to one or more categories of OTC derivatives exceeds the clearing thresholds:

- The non-financial counterparty is considered to be a NFC+ and as such:

• it must immediately inform the ESMA and the relevant competent authority (notification);
• it must establish clearing arrangements within 4 months of the notification;
• it is subject to the clearing obligation only for OTC derivative contracts that are entered into or novated more than four months after notification that belong to the asset classes for which the calculation result exceeds the clearing thresholds (see Part III "Clearing Obligation" below for more details) and;
• it is subject to transaction reporting requirements (see Part II "Transactions Reporting") and collateral exchange requirements (if eligible) and other risk mitigation techniques (see Part IV "Risk Mitigation Techniques").

Note: Where the NFC+ has not calculated its positions, it will be subject to the clearing obligation for OTC derivative contracts that belong to any category of OTC derivative products that is subject to the clearing obligation.

When the result of this calculation (aggregated at the group level) is below all the compensation thresholds, 

- The non-financial counterparty is considered to be a NFC- and as such:

• it is not subject to the clearing obligation, the valuation obligation and the collateral exchange requirements;
• but it remains subject to the other risk mitigation techniques (see Part IV "Risk Mitigation Techniques") and to a lesser extent to the transaction reporting obligation (see Part II "Transactions Reporting").

Note: For the calculation of their positions, NFCs only take into account their transactions whose "risk reduction cannot be objectively measured", OTC transactions made for hedging purposes are therefore excluded from this calculation. Furthermore, when NFC entities are consolidated in a group, their status must be assessed at the entity and group level. If a NFC in a group exceeds a clearing threshold due to its exposure to non-hedging derivatives, its NFC+ status will apply to all other NFCs in the group. If no clearing threshold is crossed at the entity level but a clearing threshold is crossed at the group level (taking into account the aggregation rules applying to the positions), all NFCs in the group will be considered as NFC+. In other cases, the entities will be considered as NFC-.  

In conclusion, below is the categorization and status of counterparties under EMIR: 

We invite you to inform Société Générale of your classification/status so that we can make the necessary arrangements. You can contact our regulatory support team at the following address: sgcib-regulatory-support.par@sgcib.com

Note: Third country entities (i.e. entities established outside the European Union) are required to determine their EMIR classification (financial counterparty or non-financial counterparty) taking into account the nature of their activities as if they took place in the EEA and must also specify their EMIR status ( FC+ / FC- or NFC+ / NFC-). If a third country entity does not provide its EMIR classification and status, based on ESMA's EMIR Q&A, it will have to be categorized according to the most restrictive classification/status (FC+ or NFC+).

The exempted entities

EMIR provides several types of exemptions:

- Full exemption: EMIR Regulation does not apply:

• to members of the European System of Central Banks (ESCB) or entities exercising a similar function, public bodies responsible for managing public debt or intervening in this management of the Union;
• to the Bank for International Settlements;
• to central banks and public bodies responsible for or involved in the management of public debt in the following countries: Japan, the United States of America, Australia, Canada, Hong Kong, Mexico, Singapore, Switzerland, the United Kingdom of Great Britain and Northern Ireland.

Note: The European Commission is empowered to adopt delegated acts to amend the list of countries mentioned above.

- Partial exemption: EMIR Regulation, with the exception of the reporting obligation, does not apply:

• to certain multilateral development banks;
• to public sector entities when they are owned by central governments and have formal guarantee systems provided by these central governments;
• to the European Financial Stability Fund (EFSF) and the European Stability Mechanism (ESM).

- Temporary exemption from the central clearing obligation for pension schemes arrangements located in the EEA: until June 18, 2023, the clearing obligation does not apply to OTC derivative contracts whose contribution to the reduction of investment risks that are directly related to the financial solvency of pension schemes can be objectively measured, nor to entities established to compensate the members of these schemes in case of default.

- Exemption from mandatory clearing and/or collateral exchange for intragroup transactions: under certain conditions, EMIR provides that intragroup transactions may be exempt from clearing and/or collateral exchange.

Note: Counterparties must notify the competent authorities of their intention to make use of this exemption.

- Exemption from reporting intra-group transactions when one of the counterparties is a NFC: under certain conditions, EMIR provides that the reporting obligation does not apply to derivative contracts within the same group when at least one of the counterparties is a NFC or would qualify as a NFC if it were established in the European Union.

Note: Counterparties must notify the competent authorities of their intention to make use of this exemption. In France, the AMF's notification form for exemption from reporting intra-group transactions must be used.