EMIR Newsflash: Proposed amendments to Margin RTS published

The European Supervisory Authorities (ESAs) have published a Final Report setting out the proposed updates to the Margin RTS to bring them into line with market expectations and developments.

The key proposed updates are:

• Extension of the implementation timetable for regulatory initial
  margin requirements, to align with the revised timetable set out by
  BCBS/IOSCO in July. This would mean that the Phase 5 implementation
  deadline of 1 September 2020 would apply to counterparties with an
  Aggregate Average Notional Amount (AANA) of €50bn, and a new
  Phase 6 implementation deadline of 1 September 2021 would apply to
  counterparties with an AANA of over €8bn.

• Exemption of physically-settled FX forwards and physically-settled FX
  swaps from the requirement to exchange variation margin, where at
  least one of the counterparties is not a credit institution or a
  MiFID investment firm (or any third country equivalent).

• Extension of the temporary exemption for single-stock equity options
  or index options from both the variation margin and initial margin
  requirements until 4 January 2021.

• Extension of the temporary intra-group exemption until 21 December
  2020.

The ESAs also provided welcome written confirmation of their view that the €50m initial margin threshold may be relied upon by market participants to avoid the need to put in place the otherwise required operational and legal arrangements for initial margin. The ESAs’ view is that there is no need to amend the Margin RTS to bring this into effect.

The proposed amendments have now been sent to the European Commission for endorsement, following which they will be subject to a period of non-objection from the European Parliament and the Council. Given that it will take some time for this procedure to be completed, and especially bearing in mind that the temporary exemptions mentioned above are due to expire in January 2020, the ESAs also state that they expect competent authorities to exercise regulatory forbearance and to apply the margin requirements in a risk-based and proportionate manner until the proposed updates enter into force.