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.
Keywords: Europe, EU, Banking, Securities, Insurance, Bilateral Margin Requirements, Regulatory Technical Standards, OTC Derivatives, Fallback, EMIR, ESAs, BCBS, IOSCO
Previous ArticleFASB Publishes Summary of Emerging Issues Task Force Meeting
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.