On 27 March 2025, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) published a joint consultation paper (CP), PRA CP5/25 and FCA CP25/5, on Margin requirements for non-centrally cleared derivatives: Amendments to BTS 2016/2251.
Background
Under the onshored European Market Infrastructure Regulation, firms are required to exchange initial margin (IM) and variation margin on non-centrally cleared over-the-counter (OTC) derivatives. Single-stock equity options and index options are exempted from these requirements until 4 January 2026.
The PRA and FCA consulted in July 2023 on extending these temporary exemptions until 4 January 2026 to enable them to carry out further analysis to develop a permanent UK framework for these products. Industry had also asked the PRA to clarify the UK’s approach to supervisory pre-approval of IM models, and the 2023 consultation aimed to provide that clarity.
Proposals
The CP sets out proposals to update the UK EMIR Binding Technical Standards (BTS) 2016/2251 to:
- Implement an indefinite exemption for single-stock equity options and index options from the UK bilateral margining requirements.
- Remove the obligation to exchange IM on outstanding legacy contracts, where a firm subsequently falls below the in-scope thresholds.
- When transacting with a counterparty subjected to the margin requirements in another jurisdiction, permit UK firms to use that jurisdiction’s threshold assessment calculation periods and entry into scope dates to determine whether those transactions are subject to IM requirements.
Through their consultation, the PRA and FCA are seeking to understand the impact of their proposals on firms that engage in OTC derivatives.
Next steps
The deadline for responses is 27 June 2025.
The PRA and FCA then plan to publish a policy statement and amended BTS in H2 2025.