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    ESAs Publish Draft Amendments to Bilateral Margin Requirements

    December 05, 2019

    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.


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    Keywords: Europe, EU, Banking, Securities, Insurance, Bilateral Margin Requirements, Regulatory Technical Standards, OTC Derivatives, Fallback, EMIR, ESAs, BCBS, IOSCO

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