04 November 2021
The European Banking Authority (EBA) launched today a public consultation on its draft Regulatory Technical Standards (RTS) on Initial Margin Model Validation (IMMV) under the European Markets Infrastructure Regulation (EMIR). The consultation paper sets out the supervisory procedures for initial and ongoing validation of initial margin models, which will be used to determine the level of margin requirements for uncleared over the counter (OTC) derivatives. Supervisory validation will ensure harmonised supervisory procedures and an appropriately prudent approach to the level of initial margins for EU derivatives counterparts. The consultation runs until 4 February 2022.
The consultation paper envisages the application of supervisory procedures to both large and medium-sized counterparties by using a dual approach, proportionate to the size of the counterparty. This entails (i) a standard supervisory procedure to ensure an in-depth validation of the largest banking counterparties, and (ii) a more pragmatic and simplified approach applied to smaller counterparties.
In addition, this consultation paper foresees a phased-in implementation of the supervisory requirements to ensure a smooth model validation process. This phased-in provision allows more time for smaller counterparties to comply with the new requirements.
Finally, to minimise market disruption, competent authorities and counterparties will be supported in the application of the new validation approach for a transitional period of two years since the application of the new rules. This transitional provision will apply for the validation of models already in place at the moment of application of the rule.
Responses to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 4 February 2022.
A public hearing will take place via conference call on 15 December 2021 from 15:00 to 17:00 CET.
All contributions received will be published after the consultation closes, unless requested otherwise.
This draft RTS has been developed in accordance with Article 11(15)(aa) of Regulation (EU) No 648/2012 (EMIR) on the risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty which mandates the EBA to specify the supervisory procedures that would ensure initial and ongoing validation of the risk-management procedures in the level of collateral. These draft RTS are being developed in cooperation with ESMA and EIOPA.
Franca Rosa Congiu