EBA, EIOPA and ESMA propose amendments to bilateral margin requirements

What Changed

• - Counterparties whose average aggregate notional amount (AANA) of non-centrally cleared OTC derivatives falls below the EUR 8 billion threshold will no longer be required to exchange initial margin on *either* new or existing uncleared OTC derivativ
• The current framework, under which below-threshold counterparties are exempt from initial margin for new trades but must continue to exchange initial margin for pre-existing “legacy” contracts, will be replaced with a full exemption covering the enti
• Article 28(1) of Delegated Regulation (EU) 2016/2251 will be amended to explicitly extend the exemption from initial margin requirements to outstanding contracts where one of the two counterparties falls below the EUR 8 billion AANA threshold.
• The RTS introduce a clearer operational framework for entry into and exit from the initial margin regime based on the annual AANA calculation for March–May, including scenarios where one or both counterparties cross above or below the EUR 8 billion t
• Once a counterparty falls below the EUR 8 billion threshold under the revised rules, firms will be permitted to terminate related initial margin processes, including ceasing ongoing calculation, exchange and custodial segregation, subject to prudent
• The ESAs explicitly position these amendments as simplification and burden reduction measures, responding to industry feedback that ongoing initial margining for legacy trades below the threshold is disproportionately complex and costly.

Suggested Considerations

• Map all EMIR in-scope entities within the group and identify those whose AANA of non-centrally cleared OTC derivatives is close to or below the EUR 8 billion threshold, to assess which relationships may benefit from the expanded exemption.
• Review current collateral and margin frameworks to identify legacy contracts where initial margin is still being exchanged solely because the regime requires continuation despite the counterparty having fallen below the EUR 8 billion threshold.
• Prepare an internal policy update so that, once the RTS enter into force, initial margin requirements are switched off for counterparties below the EUR 8 billion threshold on both new and existing uncleared OTC derivatives, subject to group risk appetite.
• Update EMIR margin procedures and AANA calculation processes to ensure accurate annual determination of whether each counterparty is above or below the EUR 8 billion threshold, including documentation of the March–May calculation methodology.
• Review and amend collateral agreements, credit support annexes (CSAs) and associated legal documentation to incorporate the revised treatment for below-threshold counterparties, including terms for stopping margin exchange and potentially releasing segregated collateral.
• Assess operational impacts on custodial arrangements and segregated accounts used for initial margin, and design a controlled process for closing or rationalising accounts where margin will no longer be required following a threshold breach.

Key Dates

Who is Affected