EMIR: Revisit of FX collateral requirements

On 18 December 2017, the European Supervisory Authorities (EBA, EIOPA, ESMA – "ESAs") published draft Regulatory Technical Standards (RTS) amending the framework of the European Market Infrastructure Regulation (EMIR) with regard to the requirement to exchange variation margin for physically settled foreign exchange forward contracts ("FX Forwards"). More specifically, the amendment of the current RTS and their subsequent implementation would entail the application of the requirement to exchange variation margin for physically settled FX Forwards only to transactions between institutions, as defined in CRD IV Regulation (i.e. credit institutions and investment firms). As a result, investment funds, which are currently in scope of the variation margin requirements, would be exempt from providing variation margin for FX Forwards.

In anticipation of the adoption of these changes in European legislation, the ESAs stated on 24 November 2017 that they expect the competent authorities to apply their risk-based supervisory power in a proportionate manner regarding their day-to-day enforcement of applicable legislation (i.e. the requirement under EMIR to exchange variation margin for FX Forwards from 3 January 2017).

On this basis, the CSSF has indicated that it will not insist on UCITS and AIFs posting or collecting variation margin for their FX Forwards.