Featured Product

    FSB Reviews Implementation of OTC Derivatives Reforms in Mexico

    March 19, 2020

    FSB published a report on the peer review of implementation of the G20 commitments on over-the-counter (OTC) derivatives reforms in Mexico. The review finds that the financial authorities in Mexico have made good overall progress in the implementation of OTC derivatives reforms and offers certain recommendations. The report highlights that Mexico has implemented comprehensive requirements for trade reporting, central clearing, and platform trading. However, the final capital requirements, comprising the final standard on measuring counterparty credit risk exposures (SA-CCR) and the final standard for capital requirements for bank exposures to central counterparties, will be published and in force by the first half of 2020.

    The OTC derivatives market in Mexico is relatively small from a global perspective, but it is the largest in Latin America. The market has a substantial cross-border component, with foreign banks being important players. Interest rate derivatives are the predominant asset class as measured by notional amount outstanding, while foreign exchange trades dominate daily turnover. Mexico does not have a specific law dedicated to regulating OTC derivatives markets; however, in the recent years, the authorities undertook several initiatives to enhance rules and procedures in this area.

    Currently, no requirements exist in Mexico for the margin exchange for non-centrally cleared derivatives. However, Banxico has been working on a project to introduce margin requirements for financial institutions (credit institutions, brokerage firms, and investment funds). As proposed in a public consultation in the second quarter of 2019, Banxico would require financial institutions to exchange initial and variation margins for the non-centrally cleared derivatives for which they are counterparties. It would establish margin exchange obligations for entities for which the notional amount outstanding of derivative positions exceeds 25 billion Units of Investment or UDIs (nearly USD 8 billion), following a timetable similar to the one proposed by BCBS-IOSCO. The margin requirements would apply to all non-centrally cleared derivatives, with the exception of some physically settled foreign-exchange derivatives, as considered by international standards. A methodology has also been agreed by market participants, on valuation of interest rate derivatives based on the type of collateral used.

    In accordance with the Mexican regulatory framework, higher capital requirements are applied to non-centrally cleared derivatives by requiring a Credit Valuation Adjustment, or CVA, risk charge. This requirement only applies to transactions performed by banks with any counterparty, with the sole exception of derivatives traded with Banxico. National Banking and Securities Commission (CNBV) is working to implement the final capital requirements—comprising the final standard on SA-CCR and the final standard for capital requirements for bank exposures to central counterparties—which were due to be implemented by January 01, 2017. Mexico expects that the final rules will be published and in force by the first half of 2020. This is particularly important for derivatives, as it provides for improved netting benefit and recognition of margin for both centrally cleared and non-centrally cleared transactions. The report recommends that the Mexican financial authorities should:

    • Complete timely implementation of the remaining OTC derivatives reforms by adopting final capital requirements for non-centrally cleared derivatives and margin requirements for non-centrally cleared derivatives, including those for pension funds, insurance companies, and non-financial entities
    • Expand the scope and sharing of trade repository data, including by removing barriers to full reporting of Mexican trade repository data to foreign trade repositories
    • Expand the existing authority of the CNBV for aspects of the supervision and enforcement of conduct of market participants


    Related Links

    Keywords: Americas, Mexico, Banking, Securities, Insurance, OTC Derivatives, CNBV, SA-CCR, CVA Risk, Basel, Initial Margin, Variable Margin, FSB

    Featured Experts
    Related Articles
    News

    EBA Finalizes Remuneration Standards for Investment Firms in EU

    EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).

    January 21, 2021 WebPage Regulatory News
    News

    ECA Recommends Actions to Enhance Resolution Planning for Banks

    EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.

    January 20, 2021 WebPage Regulatory News
    News

    BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK

    BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.

    January 20, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules on Identity Verification of Depositor Protection

    PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).

    January 20, 2021 WebPage Regulatory News
    News

    FSB Publishes Work Program for 2021

    FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.

    January 20, 2021 WebPage Regulatory News
    News

    FCA Issues Update on Move to New Data Collection Platform

    FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.

    January 20, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Derivation Rules for Reporting by Banks

    Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.

    January 19, 2021 WebPage Regulatory News
    News

    FED Revises Capital Planning and Stress Testing Requirements for Banks

    FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.

    January 19, 2021 WebPage Regulatory News
    News

    ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020

    ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.

    January 19, 2021 WebPage Regulatory News
    News

    ESAs Publish Reporting Templates for Financial Conglomerates

    ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.

    January 18, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6484