The European Supervisory Authorities (ESAs) have proposed simplifying margin requirements for uncleared over-the-counter (OTC) derivatives under the European Market Infrastructure Regulation (EMIR), aiming to reduce complexity for counterparties below the €8bn initial margin threshold.

The ESAs include the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA).

In their Final Report on Draft RTS on Uncleared OTC Derivatives, the ESAs noted that the current framework provides a derogation from initial margin requirements for new OTC derivative contracts where one of the two counterparties has an aggregate month-end average notional amount (AANA) below the €8bn threshold.

The proposed amendments would extend this derogation to existing contracts when a counterparty falls below the threshold, addressing practical issues and simplifying the treatment for affected firms.

As part of the consultation process, the ESAs sought feedback from stakeholder groups, including the Occupational Pensions Stakeholder Group (OPSG).

The OPSG supported the proposed simplification, highlighting that occupational pension institutions often use OTC derivatives for prudent risk-management purposes, including hedging.

It said measures that reduce unnecessary operational complexity and compliance burdens were welcome where they did not create a disproportionate prudential impact.

The group also welcomed the clarification that, where one counterparty falls below the €8bn threshold, initial margins would no longer need to be collected for non-centrally cleared OTC derivative contracts between those counterparties, and that initial margins already collected for outstanding contracts could be released.

The ESAs have submitted the draft RTS to the European Commission for endorsement as a Delegated Regulation.

The standards will then be subject to review by the European Parliament and the Council before publication in the Official Journal of the European Union.

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