PRA and FCA launched a joint consultation (CP6/21) to amend the onshored EU technical standards on margin requirements for non-centrally cleared derivatives. The aim is to introduce or extend exemptions for some products subject to bilateral margin requirements and to align implementation phases and thresholds of the initial margin requirements to international standards from BCBS and IOSCO. The proposal addresses amendments to the initial margin phase-in deadlines and thresholds and the application of variation margin requirements for physically settled foreign-exchange forwards and swaps; the proposal also extends the temporary exemption for single-stock equity and index options until January 04, 2024. This consultation ends on May 19, 2021, with the proposed changes expected to become effective on the planned publication date of the final technical standards instrument—that is, July 01, 2021.
The proposals in this CP6/21 would result in changes to the UK version of Commission Delegated Regulation 2016/2251 (hereafter Binding Technical Standards, or BTS, 2016/2251), and technical standards under Article 11(15) of the European Market Infrastructure Regulation (EMIR). PRA and FCA propose to implement amendments to the initial margin phase-in deadlines and thresholds by:
- Removing the September 01, 2020 phase, thereby providing firms with operational relief to assist with mitigating the effects of COVID-19 disruption
- Introducing a September 01, 2021 phase to capture those firms with over EUR 50 billion in aggregate average notional amount of non-centrally cleared derivatives
- Introducing a September 01, 2022 phase to capture those firms with over EUR 8 billion aggregate average notional amount of non-centrally cleared derivatives
With respect to the proposal to amend the application of the variation margin requirements for physically settled foreign-exchange forwards and swaps, the requirement to exchange variation margin would only apply to firms that are "institutions" as defined in Article 4(1)(3) of Capital Requirements Regulation (CRR). The proposal would apply to both forwards and swaps to ensure consistent treatment of the similar risks, regardless of legal form. This consultation paper should be read alongside the transitional regime of FCA for intragroup exemptions from margin as well as the BCBS and IOSCO statement on documentation requirements for counterparties below the EUR 50 million initial margin threshold. Following consideration of any responses, PRA and FCA will submit the updated BTS 2016/2251 to HM Treasury for approval. Assuming HM Treasury provides approval, PRA and FCA will publish the amended technical standards for the respective authorized firms.
Comment Due Date: May 19, 2021
Effective Date: July 01, 2021 (Proposed)
Keywords: Europe, UK, Banking, Securities, Derivatives, Variation Margin, Initial Margin, COVID-19, CRR, Basel, CP6/21, IOSCO, PRA, FCA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleFED Publishes Guidance to Assess LIBOR Transition Efforts of Firms
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.