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ESAs reject Commission amendments to technical standards for non-centrally cleared OTC derivatives

The three European Supervisory Authorities (ESAs) have rejected proposals from the European Commission for changes to the final draft of the Regulatory Technical Standards (RTS) on risk mitigation techniques for over the counter derivatives that are not cleared through central counterparties (CCPs). 15 Sep 2016

The ESAs are the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA).

In particular, the ESAs disagree with a Commission proposal to remove concentration limits on initial margins for pension schemes.

The concentration limits require pension funds to hold a range of sovereign government bonds and currencies when posting collateral. The Commission believes these limits would increase costs and risk. However, the ESAs said the limits are "crucial for mitigating potential risks pension funds and their counterparties might be exposed to". 

The ESAs said  it should be clear that non-centrally cleared derivatives concluded by CCPs are not covered by this regulation. "This has been a source of concern for stakeholders," the ESAs said. 

It should also be clearer whether the RTS applies to transactions concluded with third country counterparties, in particular non-financial counterparties, the ESAs said, while "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".

Some of the new wording from the Commission could also lead to a different application of the provisions to that in  the original text of the RTS, and should be changed accordingly, the ESAs said.