The European Supervisory Authorities (the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) have published a statement in response to industry requests relating to operational challenges in meeting the deadline of 1 March 2017 for exchanging variation margin.

The statement includes the following comments:

“From a legal perspective, neither the ESAs nor competent authorities (CAs) possess any formal power to dis-apply directly applicable EU legal text – for instance by issuing non-action letters, which exists in some non-EU jurisdictions. Any further delays of the application of the EU rules would formally need to be implemented through EU legislation, which is not possible at this point in time due to the lengthy process for adopting EU legislation.

As regards difficulties that in particular smaller counterparties are facing, the ESAs expect CAs to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation. This approach entails that CAs can take into account the size of the exposure to the counterparty plus its default risk, and that participants must document the steps taken toward full compliance and put in place alternative arrangements to ensure that the risk of non-compliance is contained, such as using existing Credit Support Annexes to exchange variation margins. This approach does not entail a general forbearance, but a case-by-case assessment from the CAs on the degree of compliance and progress. In any case, the ESAs and CAs expect that the difficulties will be solved in the coming few months and that transactions concluded on or after 1 March 2017 remain subject to the obligation to exchange variation margin.”

View ESAs publish statement on variation margin exchange, 23 February 2017