On 12 July 2022, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) jointly published Consultation Paper 22/13 ‘Margin requirements for non-centrally cleared derivatives: Amendments to BTS 2016/2251’ (CP22/13).

The introduction of the bilateral margining requirements were implemented in the UK by the onshored European Market Infrastructure Regulation (EMIR) and BTS 2016/2251. When compared to the EU technical standard, BTS 2016/2251 removed the eligibility of EEA UCITS as collateral and added UK UCITS to the list of eligible collateral. To avoid any cliff edge risk for UK firms immediately following the end of the transition period, EEA UCITS temporarily remained as eligible collateral until March 2022 under a transitional provision.

In Policy Statement 14/21 ‘Margin requirements for non-centrally cleared derivatives: Amendments to BTS 2016/2251’ the PRA and FCA extended the temporary eligibility of EEA UCITS as collateral until 31 December 2022. In addition, the PRA and FCA agreed to consult on the longer-term treatment of EEA UCITS as collateral. Also, in CP22/13 the PRA and FCA consider an issue relating to the application of the margin requirements that respondents previously raised in response to an earlier consultation and seek to address the issue that BTS 2016/2251 currently does not provide for a transition period for firms who, in certain circumstances, require an immediate application of the margin requirements.

In CP22/13 the PRA and FCA set out three proposals:

  • Expanding the list of eligible collateral when exchanging initial margin to include some third-country funds (including EEA UCITS) provided certain criteria are met.
  • Introducing a 6-month fall-back transitional provision in certain circumstances where the margin rules would otherwise apply to firms immediately to allow firms to establish margin arrangements.
  • Amending the definition of central counterparties to correctly refer to their regulatory status.

The deadline for responding to CP22/13 is 12 October 2022. The PRA and FCA will then submit an updated draft of BTS 2016/2251 to HM Treasury for approval.