The European Banking Authority (EBA1) issued a new draft of regulatory technical standard (RTS) in July 2023 regarding the validation requirements for methods used to determine initial margin2 under the European Markets Infrastructure Regulation. The aim of the proposal is to harmonize supervisory procedures supporting compliance with the bilateral margin framework for over-the-counter (OTC) derivatives, not cleared by a central counterparty, as prescribed by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO). It also establishes a framework for the proportionate application of these procedures. Methods used for margin calculations are often highly technical and consequently receive less attention. However, inadequate handling of margin models and related requirements carries significant business, reputational, and regulatory risks. In our newsletter, we review the background and key points of the proposal, as well as several amendment proposed in the months following the draft’s publication
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