Roberto Gualtieri, chairman of the Parliament’s Committee on Economic and Monetary Affairs, confirmed at the committee’s meeting on Tuesday it would move to ‘early non-objection’ for the draft regulatory technical standards.
As such, the rules will be decided upon at the plenary at the end of this month (October 24 to 27), rather than by the end of November as had previously been expected. According to law firm Linklaters, this means that the EU rules could come into force as early as November 17 and go live as early as December 17.
“Whilst certainty of rules in good time before the entry into force of variation margin requirements is to be welcomed,” said Deepak Sitlani, derivatives partner at Linklaters, “it would mean that those dealers subject to EU rules will need to establish initial and variation margin arrangements before Christmas.”
The Parliament’s shortened timeline for approval follows a renewed push by the European Commission to have the rules in place as soon as possible. Europe has been scrambling to catch up with the US, Japan and Canada since falling behind their September 1 rollout of initial margin requirements – a break of regulatory lockstep that one senior European banker this week described as having been a ‘disaster’.
Lawyers also expressed concern this week that any further delay, such as a rejection of the RTS or call for a redraft by the European Parliament, might create a serious obstacle to implementing variation margin rules. Those are scheduled to come into force from March 1.
But on Tuesday last week, Valdis Dombrovskis, vice-chair of the European Commission, wrote to Gualtieri and to Jeppe Tranholm-Mikkelsen, European Council Secretary General, asking to speed up the process.
“I would like to ask for your support for an early confirmation by the European Parliament that it does not object to the Delegated Regulation,” Dombrovskis wrote to Gualtieri. “This would ensure the EU follows the international timeline as closely as possible. Several major jurisdictions have already introduced the rules and some others are at the stage of finalising them, in some cases closely looking at the EU implementation timeframe.”
Those waiting on Europe notably include a number of states in the Asia Pacific region. With the exception of Japan, these opted to delay rolling out their own rules and follow Europe’s lead.
“In this context, your understanding and support would be greatly appreciated,” wrote Dombrovskis. “I would be most grateful if you could consider whether it would be possible to inform the Commission of the European Parliament's intention not to raise objections as soon as possible, whilst respecting your institutional procedures.”
These letters came as the Commission endorsed, albeit with amendments, the draft regulatory technical standards submitted in March by the three European supervisory agencies (ESAs) working on the rules — the European Securities and Markets Authority, the European Banking Authority, and the European Insurance and Occupational Pensions Authority.
The rules sets out the levels and types of collateral that over-the-counter derivatives counterparties must exchange bilaterally if the transaction is not cleared through a central clearing counterparty. The rules aim to ensure that if one counterparty to a transaction defaults, the margin collected will protect the non-defaulting counterparty against resulting losses.
