Sun. Jul 14th, 2024

The European Supervisory Authorities (EBA, EIOPA, ESMA – ESAs) published today their jointly developed draft Regulatory Technical Standards (RTS) amending the framework of the European Market Infrastructure Regulation (EMIR) with regard to physically settled foreign exchange (FX) forwards. These amendments aim at aligning the treatment of variation margin for physically- settled FX forwards with the supervisory guidance applicable in other key jurisdictions.

The draft RTS amend the risk mitigation techniques related to the exchange of collateral to cover exposures arising from non-centrally cleared over-the- counter (OTC) derivatives with respect to physically settled FX forwards.

The current framework is based on the ESAs’ RTS published on 8 March 20161, adopted by the Commission as a Delegated Regulation on 4 October 20162, which entered into force on 4 January 2017. The Delegated Regulation would require, from 3 January 2018 onwards, the mandatory exchange of variation margin for physically-settled FX forwards for all the counterparties within the scope of EMIR.

However, the ESAs have been made aware of the challenges certain end-user counterparties are facing to exchange variation margin for physically settled FX forwards. In particular, the adoption of the international standards (i.e. the framework developed by the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO)) in other jurisdictions through supervisory guidance has led to a more limited scope of application than the one proposed by the ESAs.

In the light of this, the ESAs have undertaken a review of the RTS and amended them to align the treatment of variation margin for physically-settled FX forwards with the supervisory guidance applicable in other key jurisdictions.

Specifically, the amendment of the RTS and their subsequent implementation would reiterate the commitment to apply the international standards with a more comparable scope to that of other key jurisdictions. In particular, this would imply that the requirement to exchange variation margin for physically settled FX forwards should target only transactions between institutions (credit institutions and investment firms).

Legal Basis

The draft RTS have been developed according to Article 11(15) of Regulation (EU) No 648/2012 (EMIR), which establishes provisions aimed at increasing the safety and transparency of the over-the-counter (OTC) derivatives markets in the EU.

In developing the draft RTS, the ESAs have taken into consideration the need for international consistency. Therefore, while taking into account the specific features of the European financial market, the ESAs have used the framework established by BCBS and IOSCO, as well as the BCBS’ supervisory guidance for managing risks associated with the settlement of FX transactions.

  1. https://www.eba.europa.eu/-/esas-publish-final-draft-technical-standards-on-margin-requirements-for-non-centrally- cleared-otc-derivatives
  2. http://ec.europa.eu/finance/financial-markets/derivatives/index_en.htm

Source –  ESMA: Press release on ESAs publish final draft technical standards amending margin requirements for non-centrally cleared OTC derivatives:
https://www.esma.europa.eu/document/press-release-esas-publish-final-draft-technical-standards-amending-margin-requirements-non

Further library links:

Library document – PSD Supervisory cooperation protocol: 

https://www.esma.europa.eu/document/psd-supervisory-cooperation-protocol

Library document – Statement on variation margin exchange under the EMIR RTS on OTC derivatives:

https://www.esma.europa.eu/document/statement-variation-margin-exchange-under-emir-rts-otc-derivatives

Library document – JC RTS 2013 Draft RTS on consistent application of article 6(2) of the Financial Conglomerates Directive

https://www.esma.europa.eu/document/jc-rts-2013-draft-rts-consistent-application-article-62-financial-conglomerates-directive

Library document – JC 2013 Joint Position of the European Supervisory Authorities on Manufacturers’ Product Oversight & Governance Processes

https://www.esma.europa.eu/document/jc-2013-joint-position-european-supervisory-authorities-manufacturers%E2%80%99-product-oversight

Library document – JC 2014 Joint Committee Final Report on guidelines for complaints-handling for the securities (ESMA) and banking (EBA) sectors

https://www.esma.europa.eu/document/jc-2014-joint-committee-final-report-guidelines-complaints-handling-securities-esma-and

Library document – JC 2014 Joint Committee Consultation Paper on guidelines for cross-selling practices

https://www.esma.europa.eu/document/jc-2014-joint-committee-consultation-paper-guidelines-cross-selling-practices

Library document – JC 2014 Final Report On Mechanistic references to credit ratings in the ESAs’ guidelines  and recommendations

https://www.esma.europa.eu/document/jc-2014-final-report-mechanistic-references-credit-ratings-in-esas%E2%80%99-guidelines-and

Library document – JC 2014 Self placement – reminder to credit institutions and insurance undertakings about applicable regulatory requirements

https://www.esma.europa.eu/document/jc-2014-self-placement-reminder-credit-institutions-and-insurance-undertakings-about

Library document – JC 2014 Draft RTS on risk concentration and intra-group transactions

https://www.esma.europa.eu/document/jc-2014-draft-rts-risk-concentration-and-intra-group-transactions

Library document – JC 2014 Joint Guidelines on coordination arrangements for financial conglomerates

https://www.esma.europa.eu/document/jc-2014-joint-guidelines-coordination-arrangements-financial-conglomerates

Library document – JC 2014 Guidelines on Consistency of supervisory practices for FiCos

https://www.esma.europa.eu/document/jc-2014-guidelines-consistency-supervisory-practices-ficos

Library document – JC 2016 ESAs publish the revised Joint Guidelines on the Prudential Assessment  of Acquisitions and Increases of Qualifying Holdings in the Financial Sector

https://www.esma.europa.eu/document/jc-2016-esas-publish-revised-joint-guidelines-prudential-assessment-acquisitions-and

Library document – JC 2016 Final Report Good supervisory practices for reducing mechanistic reliance on credit ratings

https://www.esma.europa.eu/document/jc-2016-final-report-good-supervisory-practices-reducing-mechanistic-reliance-credit

Library document – JC 2016 Joint Guidelines on prudential assessment of acquisitions and increases of qualifying holdings

https://www.esma.europa.eu/document/jc-2016-joint-guidelines-prudential-assessment-acquisitions-and-increases-qualifying

Library document – JC 2016 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector

https://www.esma.europa.eu/document/jc-2016-joint-guidelines-prudential-assessment-acquisitions-and-increases-qualifying-0

Library document – JC 2017 Q&A on the PRIIPs Key Information Document

https://www.esma.europa.eu/document/jc-2017-qa-priips-key-information-document

Library document – JC 2017 PRIIPs – Flow diagram for the risk and reward calculations in the PRIIPs KID

https://www.esma.europa.eu/document/jc-2017-priips-%E2%80%93-flow-diagram-risk-and-reward-calculations-in-priips-kid

Library document – JC 2017 Qualifying holdings Guidelines Compliance Table

https://www.esma.europa.eu/document/jc-2017-qualifying-holdings-guidelines-compliance-table

Library document – JC 2017 Joint Draft RTS on margin requirements for non-centrally cleared OTC derivatives

https://www.esma.europa.eu/document/jc-2017-joint-draft-rts-margin-requirements-non-centrally-cleared-otc-derivatives

Library document – ESAs 2016 RTS on risk mitigation legiswrite

https://www.esma.europa.eu/document/esas-2016-rts-risk-mitigation-legiswrite

Library document – JC 2018 Big Data Factsheet

https://www.esma.europa.eu/document/jc-2018-big-data-factsheet

Library document – ESA 2018 Letter IFRS 17 endorsement

https://www.esma.europa.eu/document/esa-2018-letter-ifrs-17-endorsement

Library document – ESAs 2018 Final Report on EMIR RTS on the novation of bilateral contracts not subject to bilateral margins

https://www.esma.europa.eu/document/esas-2018-final-report-emir-rts-novation-bilateral-contracts-not-subject-bilateral-margins

Library document – JC 2018 Final Report on Big Data

https://www.esma.europa.eu/document/jc-2018-final-report-big-data

Library document – JC 2018 Report on automation in financial advice

https://www.esma.europa.eu/document/jc-2018-report-automation-in-financial-advice

Library document – JC 2018 Joint Report on Regulatory Sandboxes and Innovation Hubs

https://www.esma.europa.eu/document/jc-2018-joint-report-regulatory-sandboxes-and-innovation-hubs

Library document – JC 2019 EFIF Terms of Reference

https://www.esma.europa.eu/document/jc-2019-efif-terms-reference

Library document – JC 2019 PRIIPs RTS Amendment Quick Fix

https://www.esma.europa.eu/document/jc-2019-priips-rts-amendment-quick-fix

Library document – JC 2019 Joint guidelines on cooperation and information exchange for the purpose of Directive (EU) 2015/849 between competent authorities supervising credit and financial institutions

https://www.esma.europa.eu/document/jc-2019-joint-guidelines-cooperation-and-information-exchange-purpose-directive-eu-2015849

Library document – JC 2020 EFIF Summary of the December 2020 meeting

https://www.esma.europa.eu/document/jc-2020-efif-summary-december-2020-meeting

Library document – ESAs 2020 Final Report on EMIR RTS on various amendmentsto the bilateral margin requirements in view of the international framework

https://www.esma.europa.eu/document/esas-2020-final-report-emir-rts-various-amendments-bilateral-margin-requirements-in-view

Library document – List of Financial Conglomerates 2020

https://www.esma.europa.eu/document/list-financial-conglomerates-2020

Library document – 2021 Work Programme of the Joint Committee of the European Supervisory Authorities

https://www.esma.europa.eu/document/2021-work-programme-joint-committee-european-supervisory-authorities

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