PRA and FCA Consult on Bilateral Margin Requirements for Derivatives
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.
Related Links
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
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
FED Publishes Guidance to Assess LIBOR Transition Efforts of FirmsRelated Articles
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
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.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
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.
MFSA Sets Out Supervisory Priorities, Issues Reporting Updates
The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023
German Regulators Issue Multiple Reporting Updates for Banks
Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022
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.