EC Amends Regulation Related to Non-Centrally Cleared OTC Derivatives
EC published the Delegated Regulation (EU) 2019/397 regarding the date until which counterparties may continue to apply their risk-management procedures for certain over-the-counter (OTC) derivative contracts not cleared by a central counterparty (CCP). Regulation 2019/397 amends the Delegated Regulation (EU) 2016/2251 supplementing European Market Infrastructure Regulation (No 648/2012), or EMIR, and it shall enter into force on the day following that of its publication in the Official Journal of the European Union.
The requirement to exchange collateral, as set out in EMIR in respect of OTC derivative contracts not cleared by a CCP, does not take into account the eventuality of a member state withdrawing from EU. The challenges faced by those parties to an OTC derivative contract whose counterparties are established in UK are a direct consequence of an event that is beyond their control and may put them at a disadvantage compared to other counterparties in EU. Commission Delegated Regulation (EU) 2016/2251 specifies different dates of application of the procedures to exchange collateral for non-centrally cleared OTC derivative contracts, depending on the category of counterparty to those contracts.
Before EMIR and Delegated Regulation (EU) 2016/2251 applied, counterparties to non-centrally cleared OTC derivative contracts were not required to exchange collateral and bilateral trades were, therefore, not collateralized or they were collateralized on a voluntary basis. If counterparties were required to exchange collateral as a result of novating their contracts to address the withdrawal of UK from EU, the remaining counterparty may not be able to agree to the novation. To ensure smooth functioning of the market and a level playing field between counterparties established in EU, counterparties should be able to replace counterparties established in UK with counterparties in a member state without being required to exchange collateral in respect of those novated contracts. The date from which they should be required to exchange collateral for the novation of those contracts should be 12 months after the date of application of this amending Regulation. Delegated Regulation (EU) 2016/2251, therefore, has been amended accordingly. Consequently, in the Delegated Regulation (EU) 2016/2251, Article 35 that addresses "transitional provisions" has been replaced.
Regulation (EU) 2019/397 shall apply from the date following that on which the Treaties cease to apply to, and in, UK pursuant to Article 50(3) of the Treaty on EU. However, this Regulation shall not apply in case a withdrawal agreement concluded with UK has entered into force by that date or a decision has been taken to extend the two-year period referred to in Article 50(3) of the Treaty on EU.
Related Links
Effective Date: March 14, 2019
Keywords: Europe, EU, UK, Securities, Banking, EMIR, OTC Derivatives, CCP, Brexit, Non-Centrally Cleared Derivatives, Regulation 2019/397, EC
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
CBIRC Issues Notice on Enhancing Financial Services for SMEs in 2019Related Articles
BoE Clarifies Approach to Treatment of Payment Holidays on Form PL
BoE published a statistical notice (Notice 2020/9) explaining the approach for treatment of payment holidays on the profit and loss return or Form PL.
BoE Provides Reporting Update on Form AS and Form FV
BoE updated the known issues document for the statistical reporting Forms AS and FV.
FED Announces Capital Requirements for Large Banks
FED announced individual capital requirements for 34 large banks and these requirements go into effect on October 01, 2020.
SRB Publishes Guidance on Implementation of Bail-In Tool
SRB published a set of documents to give operational guidance to banks on implementation of the bail-in tool.
BIS Publishes Update on G20 TechSprint Initiative
BIS published an update on the G20 TechSprint Initiative, which was launched in April 2020 and aims to highlight the potential for technologies to resolve regulatory compliance (regtech) and supervisory (suptech) challenges.
OSFI Provides Update on Implementation of IFRS 17 in Canada
OSFI published a letter that provides an update on the milestones for the implementation of the IFRS 17 standard on insurance contracts.
EBA Provides Clarity on Implementation of Guidance on COVID Reporting
EBA updated the report on the implementation of selected COVID-19 policies.
FSI Note Discusses Challenges Associated with COVID Relief Measures
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
BCBS Consults on Principles for Operational Risk and Resilience
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
BoE Updates Template and Definitions for Form ER
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.
