UK Law and Practice Contributed by: Carolyn Jackson, Nathaniel Lalone, Christopher Collins and Ciara McBrien, Katten Muchin Rosenman UK LLP (Katten)
it to be established in the UK, where an equivalence decision for reporting has been made for that juris - diction. In addition, UK EMIR, as amended by UK EMIR Refit, requires an alternative investment fund manager (AIFM) to report on behalf of its alternative investment fund (AIF), and the management company of a UCITS to report on behalf of UCITS. Due to the fact that UK EMIR Refit has modified the definition of an FC to include both an AIFM and an AIF, a UK AIFM is required to report the OTC derivatives entered into by any of the third-country AIFs it manages, as well as for its UK AIFs. Delegated reporting is permitted under UK EMIR, but the UK counterparty with the UK EMIR reporting obligation remains solely responsible and legally liable for the reporting. Due to the UK’s back-to-back clearing model, an ETD can be required to be reported by multiple counter - parties. For example, if an investment firm enters into an ETD through its clearing firm, which a CCP then clears, all parties involved – namely the investment firm, the clearing firm, and the CCP – will be required to report the ETD. This will result in four reports, as each entity must document its respective part of the transaction. UK EMIR provides an exemption from the reporting obligation for intra-group transactions, which requires at least one counterparty to be an NFC (or that it would be if it were established in the UK) and notification to the FCA. The exemption additionally requires that: • both counterparties are included in the same con - solidation on a full basis; • both counterparties are subject to appropriate cen - tralised risk evaluation, measurement and control procedures; and • the parent undertaking is not an FC. UK MiFIR Transaction Reporting UK MiFIR requires all UK investment firms to report transactions they execute in certain financial instru - ments to the FCA. Such reports must be made as soon as possible, and no later than the close of the next working day. The requirement applies to trades in financial instruments, including derivatives, to which any of the following criteria apply:
• they are admitted to trading or are traded on a UK, Gibraltar or EU trading venue; • the underlying is a financial instrument traded on a UK, Gibraltar or EU trading venue; or • the underlying is an index or basket composed of financial instruments traded on a UK, Gibraltar or EU trading venue. “Transaction” and “execution” each have specific definitions for the purposes of the transaction report - ing regime: • “Transaction”: (a) includes the purchase/sale of a financial instru - ment, entering into/closing out a derivative contract or an increase/decrease in the notional amount of a derivative contract; and (b) specifically excludes certain post-trade and settlement-related actions, including con - tracts arising exclusively for clearing or settle - ment purposes, the post-trade assignment or novation of a derivative contract and portfolio compressions. • “Execution” includes the reception and transmis - sion of orders (unless made under certain specified requirements), the execution of orders on behalf of clients, dealing on own account and making an investment decision in accordance with a discre - tionary mandate given by a client. In November 2024, the FCA published a discussion paper on improving the UK’s transaction reporting regime, including removing unnecessary burdens for reporting firms. A follow-on consultation paper is expected in 2025. 3.1.6 Business Conduct A number of business conduct requirements can apply to parties engaged in derivatives trading in the UK, depending on their status under UK EMIR (eg, FC or NFC) and their regulatory status. The key conduct requirements under UK EMIR include those outlined below. • Margin requirements: Subject to certain exemp - tions and exceptions, UK EMIR margin require - ments (VM and IM) generally apply where an FC
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