EC Amends Rules on Clearing Obligation for OTC Derivative Contracts
EC, via Regulation 2021/237, is amending the date at which the clearing obligation takes effect for certain types of contracts. In this context, Regulation 2021/237 amends the regulatory technical standards laid down in Regulations 2015/2205, 2016/592, and 2016/1178, which specify the dates from which the clearing obligation is to take effect for contracts pertaining to certain classes of OTC derivatives. The amendments to the three Regulations facilitate certain Brexit-related novations of OTC derivative contracts to EU counterparties during a specific time-window. Regulation 2021/237 shall enter into force on the day following that of its publication in the Official Journal of the European Union.
The Delegated Regulations 2015/2205, 2016/592, and 2016/1178 specify the dates from which the clearing obligation is to take effect for contracts pertaining to certain classes of OTC derivatives. In addition, those Regulations provide for different dates depending on the category of counterparty to those contracts. It is known that UK became a third country on February 01, 2020 and the EU law ceased to apply to and in UK December 31, 2020. However, the clearing obligation laid down in the European Markets Infrastructure Regulation (EMIR: 648/2012) does not take into account the eventuality of a member state withdrawing from EU. To address issues stemming from this, EC is amending the date at which the clearing obligation takes effect for certain contracts. Regulation 2021/237 is based on the draft regulatory technical standards submitted to EC by ESMA.
As part of the key changes, Articles1, 2, and 3 of the amending regulation (2021/237) amend Regulations 2015/2205, 2016/592, and 2016/1178, respectively, specifying that, in respect of contracts pertaining to a class of OTC derivatives (these include certain interest rate OTC derivatives classes and certain credit default OTC derivatives classes) set out in the respective Annexes of the regulations being amended, the clearing obligation shall take effect from February 18, 2022 where the following conditions are fulfilled:
- the clearing obligation has not been triggered by February 18, 2021
- the contracts are novated for the sole purpose of replacing the counterparty established in UK with a counterparty established in a member state
Related Links
Effective Date: February 18, 2021
Keywords: Europe, EU, UK, Banking, Securities, Clearing Obligation, OTC Derivatives, Interest Rate Derivatives, CDS, ESMA, EC
Related Articles
EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
EP Reaches Agreement on Corporate Sustainability Reporting Directive
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
PRA Consults on Model Risk Management Principles for Banks
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
EC Regulation Amends Standards for Calculating Credit Risk Adjustments
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
BIS Hub Updates Work Program for 2022, Announces New Projects
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
EIOPA Consults on Review of Securitization Framework in Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
UK Authorities Issue Regulatory and Reporting Updates for Banks
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
BCBS Issues Climate Risk Principles while HKMA Expresses Its Support
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.
