In the comment letter ESMA supports the proposal in ED/2013/2 that the novation of a hedging instrument should not be considered an expiration or termination giving rise to the prospective discontinuation of hedge accounting if certain criteria are met. However, ESMA believes that the criterion "required by laws or regulations" is unnecessary restrictive and might dis-incentivise voluntary novation. This would run counter to the aim of the European Market Infrastructure Regulation (EMIR) and similar regulations in other jurisdictions that are intended to implement the G20's agreed reforms around over the counter (OTC) derivatives designed to reduce counter-party risks in general.

The comment letter states:

Nevertheless, ESMA is concerned that the scope of the proposed amendment could be unnecessarily restrictive by limiting the exception only to those novations that result from legislation explicitly mandating the use of central counterparties for existing derivative contracts. [...] Given the benefits by the system of clearing derivatives through central counterparties from a counterparty risk point of view voluntary clearing of some other existing derivatives through a central counterparty should not be dis-incentivesed, even if not mandatorily required. [...] Accordingly, ESMA is of the view that existence of an explicit clearing obligation required by law and regulation should not be a pre-condition for the continuation of the hedging relationship, provided all other proposed conditions are met.

Please click for access to the full comment letter on the ESMA website.