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FCA Statement: Regulatory forbearance from variation margin requirements for physically settled foreign exchange forward transactions

FCA Statement: Regulatory forbearance from variation margin requirements for physically settled foreign exchange forward transactions

  • United Kingdom
  • Financial institutions

14-12-2017

The Financial Conduct Authority (the “FCA”) issued a statement on 8 December 2017 granting regulatory forbearance in relation to the 3 January 2018 deadline for the exchange of variation margin for physically settled foreign forwards. The statement given by the FCA can be viewed here.

Background

The FCA statement supports the statement issued on 24 November 2017 by the European Supervisory Authorities (“ESAs”). The statement given by the ESAs confirmed that they are in the process of reviewing, and proposing amendments to, the EMIR variation margin rules in order to align the treatment of physically settled foreign exchange forwards with the variation margin regimes in other jurisdictions.

Further background regarding the EMIR requirements and the recent proposals in respect of physically settled foreign exchange forward transactions issued by the European Commission and the ESAs can be found in our previous briefing here.

Impact

The FCA notes that the extent and scope of the proposed amendments to the variation margin rules should become increasingly clear over time. Although the detail of the amendments is not currently known, the FCA has confirmed that the proposals outlined in the statement given by the ESAs can be used by firms as an indication of what the requirements will be in future.

Firms that will fall outside of the amended rules and are currently taking steps to establish arrangements for the exchange of variation margin are no longer required to take such steps from a regulatory perspective.

Despite the availability of regulatory forbearance, firms may choose to continue to take steps to establish processes for the exchange of variation margin in respect of physically settled foreign exchange forward transactions if this is considered desirable for risk management purposes.

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