Singapore and Korea join rush to delay IM

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The Korean Regulator, FSS, is the latest regulator to announce that they will adopt the BCBS/IOSCO guidelines for mitigating risk for non-cleared OTC contracts.

This decision follows a recent publication by the MAS (Singapore’s regulatory authority) where they stated that they would also use BCBS/IOSCO’s framework for Non-Centrally Cleared Derivatives in determining whether margin requirements in a foreign jurisdiction are comparable.

Our understanding of the FSS’ and MAS’ phase-in strategy is as follows, but please bear in mind that our Korean is a bit rusty and that we welcome any corrections.

IM Phase FSS MAS
5 For target institutions with Non-Clearing OTC derivatives of more than 70 million KRW the date will be 01/09/2020. For target institutions with Non-Clearing OTC derivatives of more than SGD 80.0 billion the date will be 01/09/2020.
6 For target institutions with Non-Clearing OTC derivatives less than 70 million KRW the date will be 01/09/2021. For target institution with Non-Clearing OTC derivatives of more than SGD 13.0 billion the date will be 1/09/2021.

As mentioned in our earlier post, compliance with these requirements is made more difficult due to their under-specified nature. The BCBS/IOSCO pronouncement intones that financial institutions are expected to ‘act diligently’ and ‘ensure that the relevant arrangements needed are in place’
once they begin to approach the predetermined threshold. The CFTC, MAS and the Canadian OSFI have ‘clarified’ that arrangements need not made until the exposure threshold is “approached”, without shedding any light on what this means in practice. As an advisory body, BCBS/IOSCO’s definition deficiency is understandable; the same cannot be said for regulators.

Implications?

In the next few weeks, we can expect other national regulators to declare their allegiance to the updated BCBS/IOSCO framework and to set up staggered IM deadlines. Rumours that the EU would extend Phase 5 have been circling since May, but there has been no draft RTS to date. Although there can be no doubt that Europe will eventually implement the BCBS recommendations, it would be useful to have official confirmation of Phase 5’s supercession before its 1 September implementation period start date.

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