March 13, 2019

EC published the Delegated Regulation (EU) 2019/397 regarding the date until which counterparties may continue to apply their risk-management procedures for certain over-the-counter (OTC) derivative contracts not cleared by a central counterparty (CCP). Regulation 2019/397 amends the Delegated Regulation (EU) 2016/2251 supplementing European Market Infrastructure Regulation (No 648/2012), or EMIR, and it shall enter into force on the day following that of its publication in the Official Journal of the European Union.

The requirement to exchange collateral, as set out in EMIR in respect of OTC derivative contracts not cleared by a CCP, does not take into account the eventuality of a member state withdrawing from EU. The challenges faced by those parties to an OTC derivative contract whose counterparties are established in UK are a direct consequence of an event that is beyond their control and may put them at a disadvantage compared to other counterparties in EU. Commission Delegated Regulation (EU) 2016/2251 specifies different dates of application of the procedures to exchange collateral for non-centrally cleared OTC derivative contracts, depending on the category of counterparty to those contracts.

Before EMIR and Delegated Regulation (EU) 2016/2251 applied, counterparties to non-centrally cleared OTC derivative contracts were not required to exchange collateral and bilateral trades were, therefore, not collateralized or they were collateralized on a voluntary basis. If counterparties were required to exchange collateral as a result of novating their contracts to address the withdrawal of UK from EU, the remaining counterparty may not be able to agree to the novation. To ensure smooth functioning of the market and a level playing field between counterparties established in EU, counterparties should be able to replace counterparties established in UK with counterparties in a member state without being required to exchange collateral in respect of those novated contracts. The date from which they should be required to exchange collateral for the novation of those contracts should be 12 months after the date of application of this amending Regulation. Delegated Regulation (EU) 2016/2251, therefore, has been amended accordingly. Consequently, in the Delegated Regulation (EU) 2016/2251, Article 35 that addresses "transitional provisions" has been replaced.

Regulation (EU) 2019/397 shall apply from the date following that on which the Treaties cease to apply to, and in, UK pursuant to Article 50(3) of the Treaty on EU. However, this Regulation shall not apply in case a withdrawal agreement concluded with UK has entered into force by that date or a decision has been taken to extend the two-year period referred to in Article 50(3) of the Treaty on EU.

 

Related Links

Effective Date: March 14, 2019

Keywords: Europe, EU, UK, Securities, Banking, EMIR, OTC Derivatives, CCP, Brexit, Non-Centrally Cleared Derivatives, Regulation 2019/397, EC

Related Articles
News

IMF Releases Report on 2019 Article IV Consultation with United States

IMF published its staff report in the context of the 2019 Article IV consultation with the United States.

June 24, 2019 WebPage Regulatory News
News

BIS Report Discusses Regulatory Issues Related to Big Techs in Finance

BIS has pre-released a chapter of the BIS Annual Economic Report; this chapter focuses on the risks and opportunities presented by large technology firms in the financial services sector.

June 23, 2019 WebPage Regulatory News
News

IOSCO Report Examines Liquidity in Corporate Bond Markets

IOSCO published a report that examines the factors affecting liquidity, under stressed conditions, in the secondary corporate bond markets.

June 21, 2019 WebPage Regulatory News
News

FED Publishes Results of the 2019 Stress Tests for Banks

FED published a report presenting results of the Dodd-Frank Act Stress Test (DFAST) exercise for 2019.

June 21, 2019 WebPage Regulatory News
News

BCBS Report Examines Global Pillar 2 Supervisory Review Practices

BCBS published a report that examines the Pillar 2 supervisory review practices and approaches in Basel member jurisdictions.

June 21, 2019 WebPage Regulatory News
News

IASB Publishes Work Plan and Meeting Updates for June 2019

IASB published an updated work plan and a summary of its June meeting, which presents preliminary decisions of the Board.

June 21, 2019 WebPage Regulatory News
News

HKMA Publishes Banking Exposure Limits Code Under Banking Ordinance

HKMA issued a circular to all authorized institutions informing that the Banking (Exposure Limits) Code has been published in the Gazette on June 21, 2019.

June 21, 2019 WebPage Regulatory News
News

OSFI Proposes Guideline on Internal Model Oversight for Insurers

OSFI proposed the draft guideline E-25 on the internal model oversight framework for federally regulated property and casualty (P&C) insurance companies.

June 21, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for June 2019

Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published one answer regarding the calculation of institution-specific countercyclical capital buffer rates.

June 21, 2019 WebPage Regulatory News
News

SEC Finalizes Capital and Margin Requirements for Security-Based Swaps

SEC adopted a package of rules and rule amendments to establish capital, margin, and segregation requirements for security-based swaps, under Title VII of the Dodd-Frank Act.

June 21, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3304