Regulators delay uncleared margin rules for one year

Asset managers receive respite from authorities in implementing the final phase of the uncleared margin rules as coronavirus continues to impact regulation.

By Hayley McDowell

Regulatory authorities have moved to delay the final two final implementation phases for the uncleared margin rules (UMR) by one year due to disruptions caused by the coronavirus pandemic.

The Basel Committee and International Organisation of Securities Commissions (IOSCO) confirmed that the final phase will now take place on 2 September 2022, at which point thousands of buy-side firms with derivatives of a notional value exceeding €8 billion will have to comply with the rules.

Meanwhile, firms with derivatives of a notional value exceeding €50 billion will also see a delay, and be subject to the requirements from 1 September 2021, one year later than originally planned.

As the coronavirus pandemic continues to sweep the world, the Basel Committee and IOSCO agreed that a delay to the implementation of the rules will allow firms to focus resources on combatting the impact of the pandemic on businesses.

“In light of the significant challenges posed by COVID-19, including the displacement of staff and the need for firms to focus resources on managing risks associated with current market volatility, the Committee and IOSCO have agreed to extend the deadline for completing the final two implementation phases of the margin requirements for non-centrally cleared derivatives, by one year,” both said in a statement.

Introduced in 2016 under EMIR, the initial margin requirements for bilateral, uncleared over the counter (OTC) derivatives have been slowly phased in, and demand firms post collateral for transactions including FX forwards, cross-currency swaps, exotics and equity options, either on a tri-party or third-party basis.

The one-year extension to the rules could come as a welcome move by asset managers, following various reports and research last year that suggested buy-side firms were not ready to meet the requirements.

Last week, a group of 20 industry organisations, including the International Securities and Derivatives Association (ISDA), the International Capital Markets Association (ICMA), and the Alternatives Investment Management Association (AIMA) requested in a joint letter that phase five and six of the rules to be postponed. They said the outbreak has resulted in a significant delay for both custodians and buy-side firms in carrying out heavy onboarding tasks, as well as a delay in legal negotiations between counterparties.

DTCC supported the delay and additional time for firms, as John Straley, executive director for institutional trade processing, described the coronavirus pandemic as an industry-wide challenge.

“DTCC supports the decision by the Basel Committee on Banking Supervision (BCBS) and IOSCO to delay the implementation of the final two phases of the uncleared margin rules (UMR) for non-centrally cleared derivatives by one year as a result of the COVID-19 pandemic,” he said.  

“COVID-19 is an industry-wide challenge and the additional time provided by the UMR delay will be welcomed by industry participants as they focus resources on managing risks associated with current market volatility in conjunction with future regulatory requirements.”

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