Norton Rose Fulbright has been engaging globally with clients to assist them to update their existing derivatives documentation to ensure regulatory compliance with the varying local implementation of the BCBS-IOSCO final report on “Margin requirements for non-centrally cleared derivatives”. Final rules on margining have been in place for a while in a number of jurisdictions requiring financial institutions and other entities that are subject to the final rules of the relevant regulators (the Applicable Regulators) in the applicable jurisdictions (including the Singapore, Hong Kong, Japan and Australia) to update their Credit Support Annexes to comply with variation margin requirements (VM Requirements).

1 March 2017 was the ‘go-live’ date for the VM Requirements globally but given the size of the re-papering task and system update required by the VM Requirements market participants have not been able to be fully prepare for this date.  The Applicable Regulators have provided a variety of transitional periods, no-action relief, assumed compliance and other temporary measures to allow market participants breathing space to continue to implement the necessary updates but it is clear, even for those jurisdictions where a specified period to 1 September 2017 was prescribed, that the Applicable Regulators expect to continue to see meaningful substantive progress being made throughout the period of the temporary measures.

Post 1 March, we continue to work with clients as they seek to comply with their VM Requirements and deal with further issues arising from the process including:

  • differing interpretations between institutions of the scope of temporary measures;
  • take-it-or-leave-it vs inconsistent/incorrect documentation – a number of institutions are seeking to impose a take-it-or-leave-it approach to acceptance of their proposed amendments to existing Credit Support Annexes.  Where applicable, a high-level review of these Credit Support Annexes is still required to ensure that they are consistent with the VM Requirements applicable to both parties; and
  • backloading requirements in certain jurisdictions.

The Derivatives and Structured Finance team at Norton Rose Fulbright has significant experience in all of the issues associated with the VM Requirements, and can assist in your preparation of, response to or understanding of the necessary documentation.

If you have any questions, please get in touch with Colin Rice.

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