Submission #4

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Energy Norway

Question 1. What costs will the proposed collateral requirements create for small or medium-sized entities, particular types of counterparties and particular jurisdictions? Is it possible to quantify these costs? How could the costs be reduced without compromising the objective of sound risk management and keeping the proposal aligned with international standards?

Due to the absence of implementation of EMIR in the EEA agreement yet, there is for the time being uncertainty of whether EEA counterparties should be considered as third country counterparties or not. Due to that uncertainty the collateral requirements suggested in article 2 GEN and following could cause disproportionate costs for EEA NFC – who might not be able benefit from any exemption from the margining requirements (in particular VM), unlike the EU NFC- when in an identical situation. The only available alternative to EEA NFC- would be to trade with non EU counterparties and NFC- thus forfeiting their free choice of counterparties (and not being able to enjoy the free circulation of goods and services granted within the EU and EEA).
In our view it is erroneous to consider EEA countries to be equivalent to third countries, since EEA countries are obliged to implement all EU regulation, which is relevant for the internal European market.
In addition, EMIR and the draft technical standard correctly recognize that European NFC – companies do not pose systemic risk and therefore exempt them from the requirements under EMIR article 11 (15). There is therefore nothing to gain from making EEA NFC - , which are comparable to European NFC - , subject to the requirement for a short term period until EMIR is implemented in the EEA countries.
For more details and the specific impact on the Norwegian electricity sector companies kindly read the attachment.

Question 2. Are there particular aspects, for instance of an operational nature, that are not addressed in an appropriate manner? If yes, please provide the rationale for the concerns and potential solutions.

To prevent the cost that would arise for EEA NFC – which are considered to be third country NFC- in the transition period towards full EMIR implementation in the EEA we suggest to amend Article 2 GEN 4 (b) as follows: : (b) where they relate to transactions entered into with non-financial counterparties other than those referred to in Article 10 of Regulation (EU) No 648/2012, including for the avoidance of doubt those counterparties established with the EEA which would be NFC- if they were established in the EU, they may agree not to exchange initial and variation margin;”
We would also suggest the addition of appropriate clarifications on page 7 paragraph 3 of the "Counterparties’ risk management procedures required for compliance with Article 11(3) of Regulation (EU) No 648/2012" chapter of the consultation document which represents interpretation guidelines.
"The RTS impose an obligation on EU entities to collect margin in accordance with the prescribed procedures, regardless of whether they are facing EU or non-EU entities. EU entities would have to collect margin from all third-country entities with the exception of EEA entities below the threshold, unless explicitly exempted by the EMIR or under the EUR 8 billion threshold, even from those that would be classified as non-financial entities below the threshold if they were established in the EU or the EEA.""

Question 3. Does the proposal adequately address the risks and concerns of counterparties to derivatives in cover pools or should the requirements be further tightened? Are the requirements, such as the use of the CRR instead of a UCITS definition of covered bonds, necessary ones to address the risks adequately? Is the market-based solution as outlined in the cost-benefit analysis section, e.g. where a third party would post the collateral on behalf of the covered bond issuer/cover pool, an adequate and feasible alternative for covered bonds which do not meet the conditions mentioned in the proposed technical standards? no comment

Question 4. In respect of the use of a counterparty IRB model, are the counterparties confident that they will be able to access sufficient information to ensure appropriate transparency and to allow them to demonstrate an adequate understanding to their supervisory authority? no comment

Question 5. How would the introduction of concentration limits impact the management of collateral (please provide if possible quantitative information)? Are there arguments for exempting specific securities from concentration limits and how could negative effects be mitigated? What are the pros and cons of exempting securities issued by the governments or central banks of the same jurisdiction? Should proportionality requirements be introduced, if yes, how should these be calibrated to prevent liquidation issues under stressed market conditions? no comment

Question 6. How will market participants be able to ensure the fulfilment of all the conditions for the reuse of initial margins as required in the BCBS-IOSCO framework? Can the respondents identify which companies in the EU would require reuse or re-hypothecation of collateral as an essential component of their business models? no comment

Upload files Energi Norge answer joint ESA hearing on margining requirments_.pdf

Name of organisation Energy Norway