On 6 July 2023, the European Banking Authority (EBA) published final draft regulatory technical standards (RTS) on initial margin model validation (IMMV) under Article 11(15)(aa) of the European Market Infrastructure Regulation (EMIR).
In order to enhance compliance with the margin framework for non-cleared over-the-counter derivatives laid down by the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO), the final draft RTS on IMMV sets out the supervisory procedures for the validation of initial margin (IM) models applied for the exchange of IM.
Furthermore, the final draft RTS on IMMV envisage a proportionate application of supervisory procedures, this entails a:
- Standard supervisory procedure to ensure an in-depth validation of the largest banking counterparties.
- Pragmatic and simplified approach applied to smaller counterparties.
In addition, jointly with the RTS, the EBA has published an Opinion on IMMV, calling on the co-legislators and the European Commission to consider the establishment of a centralised validation function at the EBA to ease the coordination issues linked to the validation of IM models that have industry-wide application. The Opinion also suggests that the scope of entities subject to the RTS should be reconsidered so as to apply only to the most significant counterparties.