According to a report by the Financial Times, which cites sources familiar with the ongoing debate, European authorities are postponing standard reporting of all foreign exchange derivatives until MiFID II is implemented in 2017.
The development is not the biggest surprise, as we have already seen a divergence of opinions between different countries on whether or not certain products have to be reported under MiFID.
As has been the case with spot FX, derivatives rules will be clarified within the framework of MiFID II, which is still more than 2 years away from being implemented.
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According to the report, there will be no guidance as to what constitutes a foreign exchange derivative, after the UK vigorously criticized definitions on which European authorities were working.
Different national regulators (with the UK Financial Conduct Authority being at the forefront), have issued different definitions about derivatives, with the main issue being whether FX forwards constituted such. Back in August, the European Commission clarified that spot FX was exempted from reporting under MiFID.
The decision was taken by the ESMA board of supervisors on September the 25th. While the European regulatory body is aiming to work on a universal definition for the second issue of MiFID, there is a clear uncertainty on how the parties will achieve a consensus. The likelihood of the UK bowing to EU pressure from its position on the definition of FX derivatives is very slim at best.