Yesterday, the three European Supervisory Authorities (EBA, EIOPA, ESMA – ESAs), published a statement on the implementation of the margin requirements for non-cleared OTC derivatives under the European Market Infrastructure Regulation (EMIR). The statement responds to industry requests relating to operational challenges in meeting the deadline of 1 March 2017 for exchanging variation margin.
The ESAs argue that the implementation has been known in the EU since 2015, and that a 9 month delay already has been granted on the back of similar arguments from the industry. Any further delays would also need to be implemented through EU legislation, which in this case is not an option given the lengthy process for adopting such rules.
However, the ESAs acknowledge the challenges that smaller counterparties are facing and consequently recommend national competent authorities to adopt a risk-based approach (size of the exposure and default risk of the counterparty) in the application and enforcement of the rules. This means that existing Credit Support Annexes could be used to exchange variation margins on a case-by-case basis, as long as the counterparties document the steps taken toward full compliance.
In either way, ESAs expect that the challenges will be solved in the next few months and that transactions entered into on or after 1 March 2017 remain subject to the obligation to exchange variation margin.