On Monday January 27, the Enforcement Committee of the Autorité des marchés financiers (AMF) announced that it had imposed a fine of 500,000 euros on Bred, one of the banks in the BPCE group, for violating the Emir regulation on OTC derivatives trading.
The European Emir regulation
Published in 2012, the European Emir regulation aims to better regulate OTC derivatives markets, i.e. those concluded between two banks or between a bank and a company, outside an exchange. These regulations were devised in response to the 2008 crisis, with the aim of reducing the risk posed by the massive increase in derivative volumes. The primary objective is toincrease market transparency.
First and foremost, both counterparties to a derivative transaction must report it to the Trade Repository. Other measures include the use of operational risk mitigation techniques, and compliance by clearing houses with requirements in terms of rules of conduct, organization and capital.
Bred's failings
The AMF is accusing Bred of three main breaches that took place between November 2015 and June 2017. Firstly, Bred failed to report certain transactions to its counterparties, contrary to the Emir regulation, which requires that the terms of OTC derivative contracts be promptly confirmed.
Secondly, according to the AMF, Bred was deficient in its controls over OTC derivative transactions. It did not "have a procedure and system for monitoring confirmation times that would enable it to measure and monitor the rapid confirmation of certain transactions". Finally, the AMF states that Bred did not "update the valuations of certain reported derivatives on a daily basis." The AMF has identified a total of 255 grounds for sanctions against Bred.
An unprecedented sanction by the AMF
This is the first time that the AMF has issued a sanction against an investment services provider for non-compliance with the Emir regulation. The fine is, however, half of what the AMF had initially requested of Bred, namely one million euros. Bred has stated that it does not intend to lodge an appeal until it has examined in detail the 255 grounds for sanction identified by the AMF.