ESAs Publish Draft Amendments to Bilateral Margin Requirements
ESAs published joint draft regulatory technical standards to amend the Delegated Regulation on the risk mitigation techniques for non-cleared over-the-counter (OTC) derivatives (bilateral margining) as well as a joint statement on the introduction of fallbacks in OTC derivative contracts and the requirement to exchange collateral. The regulatory technical standards and the statement were developed to facilitate further international consistency in the implementation of the global framework agreed by BCBS and IOSCO. ESAs have developed these regulatory standards under Article 11(15) of European Market Infrastructure Regulation or EMIR (EU No 648/2012).
In view of the clarifications and changes of the global framework made over the past months by BCBS and IOSCO, the report and related regulatory standards clarify the expectations in relation to the threshold above which initial margin is expected to be exchanged and introduce a further phase-in of one year for smaller counterparties in scope for the initial margin requirements. Taking into account the global progress toward implementation of the international framework as well as the risks that BCBS and IOSCO framework was developed to address, a few amendments have been included in relation to the treatment of physically settled foreign-exchange forward and swap contracts, intragroup contracts, and equity option contracts.
The statement by ESAs clarifies the view of ESAs that amendments made to outstanding uncleared OTC derivative contracts for the sole purpose of introducing such fallbacks should not create new obligations on these legacy contracts. With regard to the statement in relation to fallbacks, ESAs believe it useful to ensure legal certainty on this issue, in case or to the extent this is not already provided in some jurisdictions. ESAs are mindful of the efforts that counterparties continue to undertake to introduce fallbacks in their legacy OTC derivative contracts across all asset classes. Therefore, while further legal certainty is expected on this via a legislative change, ESAs do not expect competent authorities to
- Prioritize their supervisory actions toward margining requirements arising as a result of the introduction of fallbacks in legacy uncleared OTC derivative contracts
- Generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner
ESAs are submitting the draft technical standards, presented in the Annex to final report, to EC for endorsement in the form of a Commission Delegated Regulation. Following the endorsement, they will then be subject to non-objection by the European Parliament and the Council. Post that, the Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union.
Related Links
Keywords: Europe, EU, Banking, Securities, Insurance, Bilateral Margin Requirements, Regulatory Technical Standards, OTC Derivatives, Fallback, EMIR, ESAs, BCBS, IOSCO
Previous Article
ESMA Chair Addresses ECON Committee on Securitization RegulationRelated Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
