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 Wednesday 24 March 2021

Consultation on uncleared margin requirements under UK onshored EMIR

When the United Kingdom left the European Union, various EU legislation was brought into UK domestic law by virtue of the European Union (Withdrawal) Act 2018.  This included the EMIR uncleared margin requirements outlined in the EMIR Margin RTS.  Only EU legislation that was in force at the end of the Brexit transition period (11pm London time on 31 December 2020) was covered.  Therefore, the amendments to the EMIR Margin RTS that became effective on 18 February 2021 have not been applied under the UK onshored version of the EMIR Margin RTS.

On 9 March 2021, the UK’s Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) issued a consultation paper outlining proposed changes to the margin requirements under UK onshored EMIR.

The proposed amendments are broadly in line with some of the Amendments to the EMIR Margin RTS (see our earlier blog –  Updates to the EMIR Margin RTS published in EU Official Journal).  

1. Updates to regulatory initial margin phase-in dates: In-scope entities (FCs, NFC+s, SFCs) will be subject to regulatory initial margin:-

  • from 1 September 2021 (Phase 5) if the aggregate month-end average notional amount (“AMEANA”) for their consolidated group is above EUR 50 billion. 
  • from 1 September 2022 (Phase 6), if their AMEANA is above EUR 8 billion.

2. Permanent exemption from exchanging variation margin for deliverable FX forwards and swaps for non-institution entities: Physically-settled FX forwards and swaps will only be subject to variation margin requirements if entered into between two “institutions” (broadly speaking credit institutions (e.g. a bank) or investment firms acting on their own behalf rather than as an agent for a non-institution entity). This proposed amendment formalises the supervisory forbearance which many entities have been relying on since it was issued in November 2017.

3. Extension to temporary exemption for single stock equity options and equity index options:  This exemption will be extended to 4 January 2024.  This is to allow the continued monitoring by the UK on how other jurisdictions are implementing the margin requirements with respect to these products to avoid possible regulatory arbitrage.

It may be interesting to note that the PRA and FCA are not proposing to adjust denominations from EUR to GBP.  Therefore, the AMEANA levels (EUR 50 billion for Phase 5 and EUR 8 billion for Phase 6), initial margin threshold (EUR 50 million) and minimum transfer amounts (EUR 500,000) remain in line with the requirements under EU EMIR margin requirements.

This consultation closes on 19 May 2021 and the proposed changes will be effective on publication of the final technical standards instrument which is planned for 1 July 2021.

Posted by Abigail Harding

Category: ISDA negotiation

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