BCBS and IOSCO Extend Initial Margin Implementation Periods

Commentary by Nihal Patel and Steven Lofchie

The Basel Committee on Banking Supervision and IOSCO ("BCBS-IOSCO") extended the implementation of derivatives initial margin ("IM") requirements.

Specifically, BCBS-IOSCO revised the IM requirements to:

  • extend the final phase for covered entities with an aggregate average notional amount ("AANA") between €8 billion and €50 billion to September 1, 2021; and
  • establish an additional final phase for firms with an AANA of over €50 billion, effective on September 1, 2020.

As previously covered, former CFTC Chair J. Christopher Giancarlo and others had expressed concerns regarding implementation for 2020. Mr. Giancarlo worried that smaller entities could be required to incur time and expense in making operations and documentation preparations, even where they may not be required to exchange margin because of the $50 million threshold specified in the rules, or because certain trading activities (e.g., foreign exchange swaps and foreign exchange forwards) are counted for AANA purposes but are not within scope for margin requirements.

Commentary

While the BCBS-IOSCO framework is not binding law, it seems reasonable to expect that regulators that adopted margin requirements based on the framework will follow this change (e.g., the CFTC, U.S. prudential regulators, and authorities in Canada, Europe, Japan, Switzerland and Singapore among others).

While the changes to the framework provide an additional year of prep time for "smaller" firms that would be within scope under the €8 billion threshold, the new €50 billion threshold for September 2020 likely will still capture a number of firms that previously have not been subject to initial margin requirements.

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