The EBA publishes a no action letter on the application of the European Market Infrastructure Regulation

The European Banking Authority (EBA) today published a no action letter stating that competent authorities (CAs) should not prioritise any supervisory or enforcement action in relation to the processing of applications for initial margin (IM) model authorisation received as a result of the entry into force of EMIR 3. The no action letter, developed in cooperation with the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), applies until key deliverables mandated under EMIR 3 become applicable.

The no action letter sets a registration process for counterparties in scope of IM model authorisation, specifying in its annex the information that counterparties should include as part of any first application submitted to CAs after the entry into force of EMIR 3, as well as for subsequent yearly updates to such application. As per the no action letter, however, CAs should not prioritise the processing of such applications, until the draft RTS on Initial Margin Model Validation (IMMV) and the guidelines on application and authorisation process mandated under EMIR 3 come into application, as those regulatory deliverables are expected to specify key requirements for the application and authorisation process, as well as for the assessment of model changes, which are missing at the moment.

EMIR 3 requires, for the first time in the EU, that counterparties apply for authorisation to their CAs before using, or adopting a change to, a model for initial margin calculation. The application of validation and authorisation requirements for IM models may raise difficulties for CAs and counterparties immediately upon entry into force of EMIR 3. This situation will persist until the EBA has set up its central validation function and until the draft RTS on IMMV and the guidelines on application and authorisation process mandated under EMIR 3 are in place.

The no action letter is addressed to all CAs and is applicable to all counterparties falling within the scope of IM model authorisation under EMIR 3.

Legal basis and background

The legal basis for the EBA to issue that opinion is included in Article 9c of Regulation (EU) No 1093/2010[1] (EBA founding Regulation), which provides that the EBA may issue no-action letters, if it considers that the application of one of the relevant legislative acts is liable to raise significant issues, as provisions contained in such act may directly conflict with another relevant act, and if it has received relevant information and considers on the basis of that information that the application of the relevant provisions raises significant exceptional issues pertaining to market confidence, consumer, customer or investor protection, the orderly functioning and integrity of financial markets or commodity markets, or the stability of the whole or part of the financial system in the Union.

EMIR 3 was published on 4 December 2024 in the Official Journal of the European Union and will apply on 24 December 2024. Regulation (EU) 2024/2987 of the European Parliament and of the Council of 27 November 2024