July 23, 2019

The Basel Committee and IOSCO have agreed to extend by one year the final implementation of the margin requirements.

This will be a welcome relief for many firms and it’s good to see regulatory bodies listening to the market and taking pragmatic steps to alleviate what could have turned out to be an ugly bottleneck.

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The fact still remains however that broadly speaking the larger financial institutions impacted to date have been able to absorb the burdens presented by UMR (legal documentation challenges, implementation timeline, cost of build etc.) in a way in which newly in-scope counterparties (NISCs) captured by the final phases may not be able to.

The final phases of IM implementation will be more intense than any of those experienced to date.

There are still a significant number of parties coming into scope in the final phases, a large multiple of the numbers seen in previous phases.

Many NISCs, may still not currently appreciate the scale of the task or the crowded implementation landscape ahead of them as they prepare.

Even with unlimited resources preliminary tasks, like entity scoping, understanding custodian documentation and regulatory collateral eligibility will prove critical in achieving a timely compliance.

Unless an effective implementation program is put in place by NISCs, there could be still be significant disruptions to the market, with participants limited in their access to liquidity and ability to manage risk.

More time is good but my advice would be, whilst implementation may be delayed… commencing the preparation work should not be. 

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