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UK EMIR Updates, 21 June 2021

2021-03-23 08:03:53

The UK Regulator gives emphasis on the updated Reporting Validation rules as well as the margin requirements under UK EMIR and the approach to reporting references to LIBOR in OTC derivatives contracts. We, Point Nine, examine the updates closer and provide you with the details of each update.

UK EMIR Validation Rules

Reporting Validation Rules (applying for 21 June 2021): The only amendment that FCA has added in its UK EMIR Validation Rules is for Field 1.30, Variation Margin Received. The rule “If field 1.21(Collateralisation) is populated with “U”, this field shall be left blank.” has now been removed.

Joint PRA/FCA Consultation Paper on margin requirements under UK EMIR

The proposed Consultation Paper (CP) sets out the Prudential Regulation Authority’s (PRA) and Financial Conduct Authority’s (FCA) proposals to establish or extend exemptions for some products subject to bilateral margining requirements, and to align implementation phases and thresholds to the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) standards. This CP proposes to amend the UK bilateral margining requirements in the onshored BTS 2016/2251 by:

changing the implementation dates and thresholds for the phase-in of IM requirements
requiring the exchange of VM for physically settled foreign exchange (FX) forwards and swaps to specified counterparties only
extending the temporary exemption for single-stock equity options and index options until 4 January 2024.
intragroup exemptions from margin, as well as the BCBS and IOSCO statement on documentation requirements for counterparties below the €50 million initial margin threshold.

This consultation closes on Wednesday 19 May 2021 and the proposed changes would be effective on publication of the final technical standards instrument, which is planned for Thursday 1 July 2021.

Please note that: The PRA and FCA invite feedback on the proposals set out in this consultation. PRA-regulated firms should address any comments or enquiries to: CP6_21@bankofengland.co.uk . FCA solo-regulated firms should address any comments or enquiries to cp21-07@fca.org.uk .Other respondents should submit responses to both authorities.

Approach to reporting references to LIBOR in OTC derivative contracts under UK EMIR

The FCA has confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative:

  • immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings
  • immediately after 30 June 2023, in the case of the remaining US dollar settings

The main concern is that amending a reference rate or adding a fallback would not trigger the application of margin or clearing requirements under UK EMIR, where this amendment relates to the treatment of legacy LIBOR trades. It’s essential that the UK EMIR trade data accurately reflects the details of the trade, therefore, counterparties and CCPs must report any modification of a derivative contract they have concluded to a registered or recognised trade repository no later than the working day following the modification of the contract. In terms of a derivative contract that an alternative rate applies in the place of LIBOR, would bring about a modification that is reportable under UK EMIR and it would be expected for this modification to be reported at the time that the alternative rate takes effect.

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