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.
Effective Date: March 14, 2019
Keywords: Europe, EU, UK, Securities, Banking, EMIR, OTC Derivatives, CCP, Brexit, Non-Centrally Cleared Derivatives, Regulation 2019/397, EC
Previous ArticleCBIRC Issues Notice on Enhancing Financial Services for SMEs in 2019
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.