On 23 November 2020, the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) (together the ESAs) co-published a final report with draft regulatory technical standards (RTS) proposing to amend the Commission Delegated Regulation on the risk mitigation techniques for over-the-counter (OTC) derivatives not cleared by a central counterparty (CCP) (bilateral margin requirements) under the European Market Infrastructure Regulation (EMIR).
The draft RTS relate to two main topics, the introduction of a number of amendments to the Commission Delegated Regulation on bilateral margining that take into account the international framework agreed by the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions and the progress made in its implementation, as well as the treatment of OTC derivative contracts novated from a counterparty established in the United Kingdom (UK) to a counterparty established in a Member State as a consequence of the withdrawal of the UK from the EU. In relation to the latter the ESAs are proposing a new amending RTS mirroring the content of Commission Delegated Regulations 2019/397 and 2019/564. ESMA believes that the underlying reasons for these two Delegated Regulations remain valid in light of the possibility that the transition period may end without the UK and EU agreeing a free trade agreement. The ESAs’ proposal also includes an amendment of the Commission Delegated Regulation on bilateral margining in order to facilitate certain Brexit-related novations of contracts to EU counterparties during a specific time-window.
The final report has been sent to the European Commission in order to submit the draft RTS for endorsement, in the form of a Commission Delegated Regulation. Following the endorsement, they are then subject to non-objection by the European Parliament and the Council.
The ESAs state that they cannot dis-apply EU law. However, in view of the steps mentioned above that the draft RTS need to go through before being finalised and enter into force, and in light of some of the relevant deadlines, with regards to the bilateral margin requirements and the treatment of physically settled FX forward and swap contracts, intragroup contracts, equity option contracts, the implementation of the last phases of the initial margin requirements as well as the end of the transition period with the UK and the treatment of OTC derivative contracts novated from the UK to the EU, the ESAs expect Member State competent authorities to apply the EU framework in a risk-based and proportionate manner with regards to the requirements related to the measures contained in the draft RTS until the amended RTS enter into force.