The Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO) have announced a one year delay to the final phase of the implementation of the margin requirements for non-centrally cleared derivatives.
The two bodies say they acknowledge the progress that has been made to implement the framework, the final phase of which was scheduled to apply to a large number of entities for the first time, but state that the delay is to support “the smooth and orderly implementation of the margin requirements which is consistent and harmonised across their member jurisdictions and helps avoid market fragmentation that could otherwise ensue”.
Implementation of the rules on a global basis has proven difficult with different jurisdictions moving at different paces, thus raising the fear of, for the short term at least, regulatory arbitrage.
In March 2019, the Basel Committee and IOSCO published a statement noting that the framework does not specify documentation, custodial or operational requirements if a covered entity’s bilateral initial margin amount does not exceed the framework’s €50 million initial margin threshold.
With this extension, the final implementation phase will take place on 1 September 2021, at which point covered entities with an aggregate average notional amount (AANA) of non-centrally cleared derivatives greater than €8 billion will be subject to the requirements. To facilitate this extension, the Basel Committee and IOSCO say they will also will introduce an additional implementation phase whereby as of 1 September 2020 covered entities with an AANA of non-centrally cleared derivatives greater than €50 billion will be subject to the requirements.
The two bodies add they expect that covered entities will “act diligently to comply with the requirements by this revised timeline and strongly encourage market participants to make all relevant arrangements on a timely basis” and have published on their websites a revised version of the margin requirements to reflect this limited revision. They stress, however, that the revised publication features no other substantive changes to the margin requirements framework and that consistent with their mandate, they will continue to monitor progress in implementation to ensure consistent implementation across products, jurisdictions and market participants.