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    FSB Reports on Progress in Implementation of OTC Derivatives Reforms

    December 03, 2021

    The Financial Stability Board (FSB) published a report that tracks international progress in finalizing standards and national and regional progress in implementing the G20 reforms to global over-the-counter (OTC) derivatives markets, following the 2008 global financial crisis. The report reveals that there has been further incremental progress across FSB member jurisdictions since the previous annual report in October 2020. The report presents the status of OTC derivatives reforms to jurisdictional frameworks as of September 2021, covering progress in the areas of capital and margin requirements for non-centrally cleared derivatives, trade reporting, central clearing, and platform trading. The report also highlights that Singapore and US expect to implement the standards for standardized approach to counterparty credit risk exposures in January 2022 and that the jurisdictions that have yet to implement the final phase of margin requirements intend to do so by the September 01, 2022 timeline.

    The report notes that most jurisdictions have withdrawn or have not extended measures previously introduced to alleviate the operational burden for OTC derivatives market participants in response to COVID-19. Changes to market and counterparty credit risk frameworks and margin practices to limit and mitigate excessive procyclicality have been embedded into jurisdictions’ supervisory frameworks. Below are the key highlights presented in the report;

    • Fifteen out of 24 FSB member jurisdictions have higher capital requirements for non-centrally cleared derivatives (significantly up from 8 in 2020) and more jurisdictions are expected to implement these requirements in 2022. Looking ahead, by the end of 2021, Mexico expects to publish a consultation for bank exposures to central counterparties, which was postponed due to COVID-19, and Russia expects to implement the standardized approach to counterparty credit risk exposures. Singapore and the US expect to implement the standards in January 2022

    • The number of jurisdictions where margin requirements for non-centrally cleared derivatives are in force remains unchanged at 16 and two jurisdictions published draft standards. Some jurisdictions that have yet to implement the requirements (India, Mexico, South Africa, Turkey) expect to do so before the final implementation phase takes effect on September 01, 2022. China has published relevant rules for public comment, with a view to enacting them before the end of 2021. Indonesia has issued consultative papers but intends to implement the margin requirements after the establishment of a central counterparty and with the implementation of close-out netting. Russia conducted consultations at the end of September 2021 with a view to enacting regulation in 2023.

    • The number of FSB jurisdictions where trade reporting requirements are in force remains unchanged at 23. In the remaining one jurisdiction, preparations for authorizing a trade repository and implementing the jurisdiction’s requirements are ongoing. Some jurisdictions report they have further strengthened the functioning of trade repositories and the reporting requirements.

    • Seventeen FSB member jurisdictions have in force central clearing requirements, unchanged since the 2020 report. Some jurisdictions are taking steps toward implementation of mandatory central clearing, including authorization of a central counterparty in the jurisdiction.

    • The number of jurisdictions with platform trading requirements in force remains unchanged at 13.

    As part of the additional reform work, the report notes that the Chairs of FSB, the Committee on Payments and Market Infrastructures (CPMI), the International Organization of Securities Commissions (IOSCO), and the FSB Resolution Steering Group initiated in 2021 work on central counterparty financial resources. A preliminary analytical report will be published on this in early 2022 and will inform options for potential new or revised international policy on the use, composition, or amount of financial resources for central counterparty recovery or resolution. In addition, the Regulatory Oversight Committee (ROC), to whom FSB has transferred the governance of the Unique Transaction Identifier (UTI), the Unique Product Identifier (UPI), and the Critical Data Elements (CDE), is overseeing the UPI service provider designated by FSB—the Derivatives Service Bureau (DSB)—and more generally ensuring that the globally harmonized derivatives data elements will be maintained over time. In June 2021, the ROC has finalized a Memorandum of Understanding with the DSB setting out a common understanding of the expected division of responsibilities for overseeing the UPI system. DSB expects to be providing UPIs for OTC derivatives from the third quarter of 2022.


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    Keywords: International, Banking, Securities, Derivatives, Basel, SA-CCR, CCP Exposures, Regulatory Capital, Margin Requirements, OTC Derivatives, Reform, FSB

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