APRA is consulting on amendments to the prudential standard CPS 226 on margin and risk mitigation requirements for non-centrally cleared derivatives. One of the proposed revisions is to accommodate the decision of BCBS and IOSCO to delay the final implementation phase for margin requirements by one year, to September 01, 2021. The consultation period on CPS 226 ends on August 28, 2019 and the proposed changes apply to all authorized deposit-taking institutions, general insurers, life insurers, and registrable superannuation entity licensees.
BCBS and IOSCO have approved a one-year extension to the final implementation of margin requirements from September 01, 2020 to September 01, 2021.BCBS and IOSCO have also adjusted the phase-in schedule requiring covered entities with an aggregate average notional amount (AANA) of non-centrally cleared derivatives greater than EUR 50 billion to be subject to margin requirements from September 01, 2020. APRA supports this extension and proposes to delay the final implementation phase by one year from September 01, 2020 to September 01, 2021. APRA also proposes to increase the qualifying level of AANA of non-centrally cleared derivatives applicable from September 01, 2020 from AUD 12 billion to AUD 75 billion and to defer the application of margin requirements to APRA covered entities with an AANA of non-centrally cleared derivatives greater than AUD 12 billion to September 01, 2021. This amount has been determined using the exchange rate used to convert EUR amounts in CPS 226.
APRA is also proposing other amendments in response to the clarifications made by BCBS and IOSCO and is adding the UK’s PRA and FCA to the list of foreign bodies eligible for substituted compliance with the margin requirements in CPS 226, following Brexit. APRA has previously confirmed that the margin requirements of EC are equivalent to the margin requirements of APRA and substituted compliance is permitted under CPS 226. To ensure a smooth transition and greater certainty in the event of Brexit, APRA will amend the list of foreign bodies whose margin requirements are approved for substituted compliance with the margin requirements in CPS 226 to include the PRA and FCA, the entities that are are jointly responsible for margin requirements in UK, provided that the margin requirements of PRA and FCA are substantively unchanged following the withdrawal of UK from EU.
BCBS and IOSCO issued a joint statement in March 201 to clarify that the documentation, custodial, and operational requirements for initial margin do not apply in cases where the initial margin is less than EUR 50 million. Following this clarification by BCBS and IOSCO, APRA proposes to clarify that an APRA covered entity is not required to have initial margin documentation, custodial arrangements, and operational processes in place for posting and collecting initial margin in cases where the bilateral initial margin amount for a trading relationship is less than the AUD 75 million initial margin threshold. However, APRA would expect APRA covered entities to act diligently to monitor their exposures and ensure they have initial margin documentation, custodial arrangements, and operational processes in place for posting and collecting initial margin as their exposures approach the threshold. APRA also proposes to amend a footnote that provides the meaning of "new" non-centrally cleared derivatives transactions. Finally, APRA proposes to add that amending contracts for existing derivative transactions solely for the purpose of addressing interest rate benchmark reforms, such as the LIBOR reforms, would not qualify as new derivative transactions and are, therefore, not subject to margin requirements. This amendment is consistent with the BCBS and IOSCO public statement in March 2019.
Related Link: Consultation Letter (PDF)
Comment Due Date: August 28, 2019
Keywords: Asia Pacific, Australia, Banking, Insurance, Pensions, Superannuation, EU, UK, CPS 226, Margin Requirements, Equivalence Regime, AANA, OTC Derivatives, Initial Margin, APRA
Previous ArticleSNB Publishes Forms and Instructions for Large Exposure Reporting
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.