ESAs reject proposed amendments from the European Commission to technical standards on non-centrally cleared OTC derivatives

09 September 2016

The three European Supervisory Authorities (EBA, EIOPA, ESMA - ESAs), published today their Opinion addressed to the European Commission expressing disagreement with its proposed amendments to the final draft Regulatory Technical Standards (RTS) on risk mitigation techniques for OTC derivatives not cleared by a central counterparty, which were originally submitted for endorsement on 8 March 2016.
 
Following the European Commission's communication on 28 July 2016, of its intention to endorse the ESAs' final draft RTS with amendments, the ESAs issued an Opinion rejecting some of the proposed changes. 
 
In particular, the ESAs disagree with the European Commission's proposal to remove concentration limits on initial margins for pension schemes and emphasise that these are crucial for mitigating potential risks pension funds and their counterparties might be exposed to.  
 
In addition, in the Opinion the ESAs observed the following:
 
  • As with other thresholds in the RTS submitted to the European Commission, the calculation of the threshold against non-netting jurisdictions should consider both legacy and new contracts.
  • With reference to covered bonds, the additional condition included in the European Commission's proposed amendments would have the effect of ranking derivatives counterparties after bond holders, which is contrary to the reasoning established in European Market Infrastructure Regulation (EMIR) to grant a preferred treatment to cover bonds.
  • The ESAs recommend providing clarity that non-centrally cleared derivatives concluded by central counterparties (CCPs) are not covered by this regulation. This has been a source of concern for stakeholders. 
  • More clarity should also be brought to the application of the RTS to transactions concluded with third country counterparties, in particular non-financial counterparties.
  • The delayed application to intragroup transactions should be maintained to allow national competent authorities to complete the relevant approval process before the obligation will start applying.
The ESAs believe that the introduction of a number of wording changes proposed by the European Commission may lead to a different application of the provisions compared to their original text of the RTS and, therefore, advise amending them accordingly.
 
A version of the draft RTS containing all the aforementioned corrections in detail is included as an Annex to the Opinion.
 

Background and legal basis

On 8 March 2016, the ESAs submitted the final draft RTS to the European Commission for endorsement. On 9 June 2016, the European Commission notified the ESAs of a delay in the endorsement process providing an endorsement with amendments of the draft RTS on 28 July 2016.
 
The Opinion was prepared in accordance with Article 10 of the ESAs Regulations, empowering the three Authorities to consider the amendments and to provide further technical input, if needed.