Following the communication of 9 June 2016 from the European Commission staff and the public communication by the European Commission on the delayed adoption of the Joint draft Regulatory Technical Standards on risk mitigation techniques for non-centrally cleared OTC derivatives (RTS on bilateral margins), the European Supervisory Authorities (ESAs) would like to express their strong concerns with this delay, and would like to ask to keep this delay as short as possible.
They mentioned following reasons:
First, the calendar for the implementation of these requirements was agreed at international level. The ESAs and the European Commission promoted the implementation timeline of the BCBS-IOSCO agreement and worked together with the other two major jurisdictions (the United States of America and Japan) for its consistent and coordinated implementation.
Secondly, the ESAs would like to highlight that a delay in the endorsement of the technical standards would not only generate uncertainty within the European Union but might also raise a number of cross-border issues:
In accordance with the BCBS-IOSCO agreement, a large number of financial counterparties and some non-financial groups should start exchanging variation margin from 1 March 2017. This is also the date foreseen in the draft RTS. This timeline is relevant for the entire industry as it is of utmost importance for the implementation efforts under way. A delay may require re-negotiation of existing agreements.
The absence of a new timeline, including the phase-in of initial margin, may put third-country authorities in a difficult position. They would not be able to clarify with their firms the supervisory expectations in relation with those jurisdictions that have not yet implemented margin rules, including the European Union.
The lack of requirements on the margin exchange for intragroup transactions may generate uncertainty for those international groups that end up being subject to third-country rules with no clarity, neither for the groups themselves nor for the third-country supervisors, on the implementation of the European Union rules.
Thirdly, the ESAs believe that although the firms captured by the first date of application are small in number, they still represent a significant size of the market and therefore a substantial source of systemic risk. This is particularly relevant given the global nature of the OTC derivative market, which makes an international alignment of the rules for these large banks of utmost importance.
In addition, the statement in the communication by the European Commission that these entities would be captured by other jurisdictions is not entirely correct. The delay in the European Union might incentivise global banks to use their European operations to carry out OTC derivatives transactions and only part of those might be covered by extraterritorial provisions from other jurisdictions. Furthermore, we do not consider that bringing European banks under the internationally agreed standards through the extra-territorial application of other jurisdictions is consistent with the position that the Union has kept in recent times.
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