The EBA Asks For Input To Entities Falling Within The Scope Of Initial Margin Model Authorisation Under The Revised European Market Infrastructure Regulation

The European Banking Authority (EBA), in cooperation with the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), launched today a short survey addressed to entities within the scope of the initial margin (IM) model authorisation regime introduced by the upcoming revised European Market Infrastructure Regulation (EMIR 3). The deadline for submitting responses is Friday 29 November 2024.

EMIR 3 will introduce important novelties, such as:

• an authorisation regime for IM models used by counterparties in the EU;
• a new EBA central validation function for pro-forma margin models (such as ISDA SIMM);
• a supervision of IM models with greater focus on larger counterparties.

The EBA, in cooperation with ESMA and EIOPA, is seeking general information on entities within the scope of IM model authorisation, as well as specific information relevant for fee calculation and on initial margins and IM models used.

This information will guide the EBA in the setup of its central validation function and inform the EBA’s response to the EU Commission’s Call for advice on a possible Delegated Act on fees received on 31 July 2024. The information will also be used to develop proportionate requirements for entities within the scope of IM model authorisation, especially for smaller entities (the so called “Phase 5” and “Phase 6” entities) - as part of upcoming mandates under EMIR 3.

Consultation process

Entities currently subject to the requirement to exchange initial margin – in accordance with EMIR and under Article 36 of Commission Delegated Regulation (EU) 2016/2251 (the joint ESAs RTS on uncleared OTC derivatives) -  and using at least one IM model to comply with that requirement, are expected to fill in the survey. All entities of a group that are subject to this requirement are expected to fill in the survey separately, at entity level.

Responses should be submitted by Friday, 29 November 2024, via the online tool that can be accessed under the following link: https://ec.europa.eu/eusurvey/runner/IMMVEMIR3

To access the survey, a password must be used, which can be obtained from trade associations and competent authorities. Non-supervised entities can contact eba-immv@eba.europa.eu.

Questions on the survey should be submitted via the contact form available in the online survey tool.

Next steps

Closer to the EMIR 3 publication, the EBA will publish on its website operational clarifications aimed to ensure a smooth, convergent entry into force of EMIR 3 requirements in the EU.

Legal basis and background

On 7 December 2022, the Commission published its proposal to amend EMIR as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets. On 7 February 2024, the European Parliament and the Council reached a political agreement on a compromise text (EMIR 3), which was formally endorsed by the two institutions respectively on 4 March 2024 and 14 February 2024.

EMIR 3 is expected, in accordance with its Article 11(12a), to grant EBA the additional task to set up a central validation function for the elements and general aspects of pro-forma models (such as ISDA SIMM), and changes thereto, used or to be used by a subset of financial and non-financial counterparties as part of the risk mitigation techniques used on their portfolios of non-centrally cleared OTC derivatives.

On 31 July 2024, the EBA received a Call for advice on a possible Delegated Act on fees to be charged to financial and non-financial counterparties requiring the validation by EBA of pro-forma models, with the request to submit its response by Q2 2025. As part of its response, the EBA is requested to provide a ‘quantitative and qualitative cost-benefit analysis of all the options considered and proposed’ and to ‘widely consult market participants’.