Featured Product

    ISDA and Industry Request Delay in Timeline for Initial Margin Rules

    March 26, 2020

    Considering the challenges posed by the COVID-19 pandemic, ISDA submitted a letter on behalf of 21 industry associations and their members requesting BCBS, IOSCO, and global regulators to suspend the current timeline for the initial margin phase-in to allow market participants to focus their resources on ensuring continued access to the derivatives market. Given the uncertainty, ISDA recommends that revised deadlines for phase-five and phase-six implementation be set once the overall impact of COVID-19 is known. ISDA also stresses that it is essential that markets remain open, wherever possible, to ensure critical payments and transactions can be fulfilled and firms are able to manage their exposures—a position set out in a letter to FSB and IOSCO and in a joint letter to US authorities last week.

    Regulators have previously taken in recognition of the challenges that the initial margin rules will pose to smaller firms. Last July, for example, BCBS and IOSCO extended the phase-in timeline to give the smallest entities an extra year to comply. According to the ISDA analysis, that means 3,616 counterparty relationships will have to meet the requirements in September 2020, rather than the initial 9,059. Even with this change, though, the number of firms in scope for phase five is far in excess of the number that has had to comply so far—and this would have posed a compliance challenge even in normal times. In the current situation, meeting the documentation and operational requirements would be all but impossible in an environment of staff shortages, remote working, and extreme market volatility.

    The phase-five implementation date of September 2020 may seem a long way away, but much of the preparation needs to be done now. With the focus on business continuity, little or no spare capacity is available to deploy and test infrastructure, run average aggregate notional amount (AANA) calculations, and implement margin calculation systems. AANA calculations are necessary for hundreds of counterparties to determine whether they will be subject to the regulatory initial margin requirements. All in-scope counterparties also need to calculate and monitor initial margin amounts. That means the impact of keeping the current phase-in dates will extend far beyond the number of relationships that will actually need to exchange initial margin. In light of the unprecedented circumstances, ISDA is urging global regulators to announce a delay to phase five sooner rather than later. ISDA CEO also pointed out that the largest, most systemically important firms would still be required to meet initial margin requirements, thus mitigating risk in the derivatives market.

    While urging the authorities to keep markets open during this time, ISDA point out that it does have a well-established process in place to deal with market closures and the impact on derivatives. However, even with this process, working through the practical implications of a market closure is complex and time-consuming, especially at a time when most institutions have few resources to spare. It can also lead to fragmented, imperfect outcomes.

     

    Related Links

    Keywords: International, Banking, Insurance, Securities, OTC Derivatives, Initial Margin, Timeline, COVID-19, BCBS, IOSCO, ISDA

    Featured Experts
    Related Articles
    News

    PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK

    PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.

    April 15, 2021 WebPage Regulatory News
    News

    EBA Finalizes Standards on Methods of Prudential Consolidation

    EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).

    April 15, 2021 WebPage Regulatory News
    News

    EBA Updates List of Other Systemically Important Institutions in EU

    EBA updated the list of other systemically important institutions (O-SIIs) in EU.

    April 15, 2021 WebPage Regulatory News
    News

    BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks

    BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.

    April 14, 2021 WebPage Regulatory News
    News

    UK Authorities Welcome FSB Review of their Remuneration Regime

    UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.

    April 14, 2021 WebPage Regulatory News
    News

    PRA and FCA Letter on Addressing Risks from Use of Deposit Aggregators

    PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.

    April 14, 2021 WebPage Regulatory News
    News

    MFSA to Amend Banking Act and Rules in Coming Months to Transpose CRD5

    MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.

    April 14, 2021 WebPage Regulatory News
    News

    EC Delegated Regulation on Specialized Lending Exposures Under CRR

    EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.

    April 14, 2021 WebPage Regulatory News
    News

    OSFI Proposes to Enhance Assurance Expectations for Basel Returns

    OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.

    April 13, 2021 WebPage Regulatory News
    News

    ECB Issues Results of Benchmarking Analysis of Recovery Plans of Banks

    ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.

    April 13, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6858