The European Banking Authority (EBA) has published the final draft of the Regulatory Technical Standards (RTS) on Initial Margin Model Validation (IMMV). Drafted under the European Markets Infrastructure Regulation (EMIR) requirements, the RTS “set out the supervisory procedures to ensure the prudent use of initial margin models for OTC derivatives,” states a press release.

In addition to enhancing compliance with the margin framework for non-cleared OTC derivatives, the final draft RTS also “envisage a proportionate application of supervisory procedures”. This means that larger banking counterparties are expected to apply a “standard validation process”, while smaller counterparties could apply a “simplified” version.

EBA states that implementation of the supervisory requirements will be “phased in” in order to ensure a smooth validation process. The authority believes that this approach will allow more time for smaller counterparties to comply and minimise market disruption.

PostTrade 360 Nordic 2024

In an accompanying opinion document, the EBA calls on co-legislators and the European Commission to establish a centralised validation function to ease its coordination burden. It also suggests that only “the most significant counterparties” should be required to follow the RTS.