OSFI Updates Guideline on Margin Requirements for Derivatives
OSFI updated the Guideline E-22, which establishes minimum standards for margin requirements for non-centrally cleared derivative transactions undertaken by the federally regulated financial institutions. The updates relate to the amendments to legacy derivative contracts for addressing the interest rate benchmark reforms and to the documentation, custodial, and operational arrangements related to the exchange of initial margin between covered entities. The initial margin requirements will be phased-in to smaller counterparties by September 2020.
The guideline, which is based on the BCBS-IOSCO framework, was initially finalized in February 2016 and became effective in June 2017. Under the guideline, most covered federally regulated financial institutions that meet the definition of a covered entity have been subject to the mandatory exchange of variation margin from March 01, 2017. The guideline also requires the covered financial institutions to exchange initial margin. The exchange of initial margin began in September 2016 for the largest derivatives counterparties and is being gradually phased-in to smaller counterparties until September 2020. The updates to the guideline relate to the following:
- Amendments to legacy derivative contracts, pursued solely for addressing interest rate benchmark reforms, are deemed genuine amendments under footnote 17 of Guideline E-22. As such, these amendments would not require the application of the margin requirements for legacy derivative contracts under Guideline E-22.
- Documentation, custodial, and operational arrangements related to the exchange of initial margin between covered entities are not required to be entered into until the amount of initial margin to be exchanged approaches the CAD 75 million threshold, which is noted in Guideline E-22.
The updates are in support of the BCBS and IOSCO statement that was issued in March 2019. BCBS and IOSCO said that the amendments to legacy derivative contracts pursued solely for the purpose of addressing interest rate benchmark reforms do not require the application of the margin requirements for the purposes of the BCBS-IOSCO framework, although the position may be different under relevant implementing laws. BCBS and IOSCO also noted that the framework does not specify documentation, custodial, or operational requirements if the bilateral initial margin amount does not exceed the framework's EUR 50 million initial margin threshold. The guideline is applicable to banks, foreign bank branches, bank holding companies, trust and loan companies, life insurance companies, property and casualty insurance companies, and insurance holding companies.
Related Links
Keywords: Americas, Canada, Banking, Securities, Insurance, Margin Requirements, Guideline E-22, Non-Centrally Cleared Derivatives, OTC Derivatives, Interest Rate Benchmarks, Initial Margin, OSFI
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Nick Jessop
Scenario modeling expert; risk management specialist; quantitative financial modeler
Previous Article
EU Publishes Capital Requirements Regulation II in Official JournalRelated Articles
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
Global Agencies Focus on ESG Data, Climate Litigation and Nature Risks
At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain.
ISSB Standards Shine Spotlight on Comparability of ESG Disclosures
The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures
EBA Issues Several Regulatory and Reporting Updates for Banks
The European Banking Authority (EBA) recently issued several regulatory publications impacting the banking sector.
BCBS Proposes to Revise Core Principles for Banking Supervision
The Basel Committee on Banking Supervision (BCBS) launched a consultation on revisions to the core principles for effective banking supervision, with the comment period ending on October 06, 2023.
US Proposes Final Basel Rules, Transition Period to Start in July 2025
The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame.
FSB Report Outlines Next Steps for Climate Risk Roadmap
The Financial Stability Board (FSB) recently published the second annual progress report on the July 2021 roadmap to address climate-related financial risks.
EBA Plans on Ad-hoc ESG Data Collection and Climate Scenario Exercise
The recognition of climate change as a systemic risk to the global economy has further intensified regulatory and supervisory focus on monitoring of the environmental, social, and governance (ESG) risks.
