Quiz: EU and UK Regulation

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7 questions to check your understanding of the chapter “EU and UK Regulation”. Choose an answer and select “Check answer” to see the answer and explanation. You can also open “Answer and explanation” to see the answer first.

1. Question 1

   For the regulatory technical standards (RTS) under the European Market Infrastructure Regulation (EMIR), which pair correctly names the body that drafts them and the body that adopts them?

   1. A.The European Securities and Markets Authority (ESMA) drafts them, and the European Commission adopts them
   2. B.The European Commission drafts them, and the European Securities and Markets Authority (ESMA) adopts them
   3. C.The European Commission drafts them, and the European Parliament and the Council of the EU adopt them
   4. D.The European Securities and Markets Authority (ESMA) drafts them, and the European Central Bank (ECB) adopts them
   Answer and explanation

   Answer: A

   EMIR has the European Securities and Markets Authority (ESMA) draft the regulatory and implementing technical standards. The European Commission adopts delegated regulations based on ESMA's drafts. The body that drafts and the body that adopts are different.

   The European Commission proposes legislation and adopts delegated regulations. The European Parliament and the Council of the EU adopt legislation proposed by the Commission, not delegated regulations. The European Central Bank (ECB) supervises the prudential soundness of euro-area financial institutions under the Single Supervisory Mechanism, and does not adopt EMIR's technical standards.

   Learn more: Overview of Derivatives Regulation in the EU and UK

2. Question 2

   As of October 2026, a non-financial counterparty (NFC) established in the EU counts its OTC derivative positions every 12 months and exceeds the clearing threshold in one class. The NFC immediately notifies ESMA and its competent authority. How does the clearing obligation arise?

   1. A.From contracts entered into on or after the notification date, in the class where the threshold was exceeded
   2. B.From contracts entered into after 4 months from the notification, in the class where the threshold was exceeded
   3. C.From contracts entered into on or after the notification date, in all classes subject to the clearing obligation
   4. D.From contracts entered into after 4 months from the notification, in all classes subject to the clearing obligation
   Answer and explanation

   Answer: B

   The NFC puts clearing arrangements in place within 4 months of the notification. The clearing obligation applies from contracts concluded or novated after those 4 months, in the class where the threshold was exceeded.

   Clearing in all classes subject to the clearing obligation applies to a financial counterparty (FC) that exceeds the threshold. The 4-month period after notification applies to an FC that exceeds the threshold as well.

   Learn more: EMIR

3. Question 3

   As of October 2026, a non-financial counterparty (NFC) enters into uncleared OTC derivative contracts. After counting its positions, it is below the clearing threshold. Which procedure does EMIR Article 11 require of this NFC?

   1. A.A procedure to mark outstanding contracts to market daily
   2. B.A procedure to exchange collateral in a timely, accurate and appropriately segregated manner
   3. C.A procedure to hold an appropriate and proportionate amount of capital against risks not covered by the exchange of collateral
   4. D.A procedure to confirm contract terms promptly and to reconcile portfolios
   Answer and explanation

   Answer: D

   Article 11 requires FCs and NFCs that enter into uncleared contracts to confirm contract terms and to reconcile portfolios. These two procedures, and the procedure to identify and resolve disputes early, are what applies to an NFC below the threshold.

   Daily marking to market and the exchange of collateral apply to FCs and to NFCs above the clearing threshold. The obligation to hold capital against risks not covered by collateral applies to FCs only.

   Learn more: EMIR

4. Question 4

   As of October 2026, what is the derivatives trading obligation in Article 28 of the Markets in Financial Instruments Regulation (MiFIR)?

   1. A.An obligation to trade all classes declared subject to the clearing obligation only on trading venues
   2. B.An obligation to trade classes listed in the ESMA public register only on trading venues, whether or not they are subject to the clearing obligation
   3. C.An obligation to trade classes subject to the clearing obligation and listed in the ESMA public register only on trading venues
   4. D.An obligation to trade all OTC derivatives entered into by EU investment firms only on trading venues
   Answer and explanation

   Answer: C

   The trading obligation adds a condition on the venue to transactions subject to EMIR's clearing obligation. Classes declared subject to the clearing obligation but not in the ESMA public register are not subject to the trading obligation. Transactions that are not subject to the clearing obligation, or are exempt, also fall outside it.

   Here, trading venues means regulated markets, MTFs (multilateral trading facilities), OTFs (organised trading facilities) and trading venues of third countries recognized as equivalent. The obligation applies to financial and non-financial counterparties subject to the clearing obligation, and the other party must also be a counterparty subject to the clearing obligation.

   For the obligation to take effect, the class must be traded on at least one trading venue, and must be liquid enough to be traded only on trading venues.

   Learn more: MiFID II and MiFIR

5. Question 5

   As of October 2026, which statement about the differences between UK EMIR and EMIR in the EU is correct?

   1. A.Central counterparties (CCPs) are authorized by the FCA in the UK, and by the competent authority of the Member State where they are established in the EU
   2. B.Trade repositories are registered with the Bank of England (BoE) in the UK, and with ESMA in the EU
   3. C.Article 7a, which requires an active account for those that exceed a clearing threshold, is also in the UK regulation in the same form as in EMIR
   4. D.The clearing threshold for commodity derivatives, measured as an NFC's gross notional amount, is EUR 6 billion in the UK and EUR 4 billion in the EU
   Answer and explanation

   Answer: D

   The clearing threshold for commodity derivatives of a UK NFC is EUR 6 billion, larger than the EU's EUR 4 billion. The thresholds for credit and equity (EUR 1 billion) and for interest rate and foreign exchange (EUR 3 billion) are the same in the two versions.

   In the UK, central counterparties (CCPs) are authorized by the Bank of England (BoE), and the Financial Conduct Authority (FCA) registers trade repositories. The UK regulation's table of contents has no article corresponding to the EU's Article 7a on active accounts.

   Learn more: UK EMIR

6. Question 6

   As a hypothetical example, use the table in the PRIIPs technical standards adopted in 2017 (before the 2021 amendment, assumed for this question only), as of October 2026. A structured note's underlying has a VaR-equivalent volatility (VEV), an annualized figure, of 3% and a credit risk class (CRM) of 1, and its claim is subordinated to the issuer's senior creditors. What is the summary risk indicator (SRI) shown in the key information document (KID)?

   1. A.2
   2. B.3
   3. C.4
   4. D.5
   Answer and explanation

   Answer: B

   The table is the one in Commission Delegated Regulation (EU) 2017/653. A VEV of 3% falls in the range from 0.5% to 5.0%, so the market risk class (MRM) is 2. Because the claim is subordinated, the CRM rises by 2 classes, from 1 to 1 + 2 = 3. The table value for MRM 2 and CRM 3 is 3, so the SRI is 3.

   The value 2 is MRM 2 with CRM 1, without the subordination uplift. The value 4 comes from adding the uplift to the MRM instead of the CRM, and 5 from applying the 3-class uplift for an instrument that forms part of the issuer's own funds (CRM 4).

   Learn more: PRIIPs

7. Question 7

   As a hypothetical example, suppose that, as of October 2026 under the EU Benchmarks Regulation (BMR), the financial instruments, financial contracts and investment funds that reference a benchmark total EUR 450 billion across all maturities or tenors. The benchmark has almost no substitutes, and its cessation would have a significant and adverse impact on financial stability and the real economy. Which category does this benchmark fall into?

   1. A.It is a critical benchmark, because it meets the conditions of Article 20(1)(c)
   2. B.It is not a critical benchmark, because the total is below EUR 500 billion
   3. C.It is a significant benchmark, because the average total value of what references it over 6 months is at least EUR 50 billion
   4. D.It is a significant benchmark, because the total is below EUR 500 billion
   Answer and explanation

   Answer: A

   A critical benchmark includes one with a total of at least EUR 500 billion, and also one with a total of at least EUR 400 billion but below EUR 500 billion if it has scarce substitutes and its cessation would have a significant impact (Article 20(1)(c)). This example totals EUR 450 billion, so it falls under (c).

   Looking only at the EUR 500 billion condition wrongly rules the example out. The significant benchmark category applies to benchmarks other than critical benchmarks, and is the EUR 50 billion category. Falling short of EUR 500 billion is not a reason to be a significant benchmark.

   Learn more: The EU Benchmarks Regulation (BMR)