On 30 June 2025, the European Banking Authority (EBA) published a Final Report containing technical advice on a possible Delegated Act on fees for the validation of pro forma models.

Background

Regulation (EU) 2024/2987 amending the European Market Infrastructure Regulation (EMIR) grants the EBA certain additional tasks on models used by some counterparties as part of the risk-mitigation techniques used on their portfolios of non-centrally cleared over-the-counter (OTC) derivatives by (i) setting out a prior authorisation regime by competent authorities for Initial Margin (IM) models used by  counterparties in the EU, (ii) establishing a new EBA central validation function for pro forma models such as the Standard Initial Margin Model developed by the International Swaps and Derivatives Association ‘ISDA SIMM’, and (iii) introducing supervision of IM models by competent authorities with greater focus on larger counterparties.

Per Article 11(3) of EMIR (as amended), counterparties shall apply to the EBA for the validation of pro forma models and provide the EBA with all relevant information via a central database. For that purpose, Article 11(12a) of EMIR, provides that the EBA must set up a central validation function for the elements and general aspects of pro forma models, and changes thereto, used or to be used by a subset of financial and non-financial counterparties as part of the risk mitigation techniques used on their portfolios of non-centrally cleared OTC derivatives.  Consequently, the EBA will charge annual fees, per pro forma model, to financial and non-financial counterparties using the validated models

To provide clarity on how fees are calculated and paid, the European Commission (Commission) has been empowered to adopt a delegated act in accordance with Article 82 EMIR. This delegated act is expected to specify the determination of the amount of the fees and the modalities of the payment of the fees.

On 31 July 2024, the Commission requested the EBA’s technical advice on a possible delegated act on fees to be charged to financial and non-financial counterparties requiring the validation by the EBA of pro forma models, with the request to submit its response by Q2 2025.

On 5 March 2025, the EBA issued a Discussion Paper on fees to be paid by financial and non-financial counterparties requiring the validation of pro forma models under EMIR. The deadline for comments was 7 April 2025.

Final Report

In the Final Report the EBA makes a series of recommendations to the Commission for the Delegated Act.

The recommendations include:

  • That the Delegated Act allows for all costs – whether direct or indirect -relating to the activities linked to the central validation function of pro forma models to be covered. These direct and indirect costs, which relate to the validation of pro forma models, the ongoing validation of models, the development and maintenance of statistics and IT tools for the central validation function, as well as fee calculation, invoicing, and collection, will be calculated and updated each year by the EBA.
  • Practical details of the calculation methodology that would ensure proportionality amongst all counterparties in the determination of the annual fee. In addition, the calculation methodology of the fees for a situation where more than one pro forma model would be validated.
  • Thise in relation to the payment modalities and the information to be communicated to EBA for the determination of the individual fees and the invoicing process.

In pages 4 and 5 of the Final Report the EBA sets out a summary of its proposed approach to collect fees in general terms.