On 5 December 2019, the Joint Committee of the European Supervisory Authorities (ESAs) published its final report on regulatory technical standards (RTS) on the risk mitigation techniques for over-the-counter (OTC) derivative contracts not cleared by a central counterparty under Article 11(15) of the regulation on OTC derivatives, central counterparties and trade repositories (EMIR)
The draft RTS proposes amendments to the Commission Delegated Regulation on bilateral margining (the Delegated Regulation) to take into account the international framework agreed by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions.
ESMA highlights that there are a number of remaining steps required before the draft RTS can be finalised and subsequently enters into force. In light of approaching deadlines concerning the bilateral margin requirements and the treatment of physically settled FX forward and swap contracts, intragroup contracts, equity option contracts and the implementation of the last phase of the initial margin requirements as proposed in the draft RTS, the ESAs expect competent authorities to apply the EU framework in a risk-based and proportionate manner until the amended RTS enter into force.
In addition to the report, the ESAs have published a joint statement on the introduction of fallbacks in OTC derivative contracts and the requirement to exchange collateral. The ESAs take the view that it is useful to ensure legal certainty on the issue in case it is not already provided in some jurisdictions. While the ESAs acknowledge that neither competent authorities nor themselves have the formal power to disapply directly applicable EU legal text, the ESAs are working with the co-legislators to see how a legislative change could be achieved to ensure this legal certainty.