European Central Bank publishes FAQs on initial margin models under EMIR 3

The European Central Bank(ECB) has published FAQs on initial margin (IM) model approvals under EMIR 3. EMIR 3 requires, for the first time in the EU, counterparties to apply for authorisation before using, or adopting a change to, their IM calculation model. Applying validation and authorisation requirements for IM models was expected to cause difficulties for national competent authorities (NCAs) and counterparties immediately upon entry into force of EMIR 3. In 2024, the European Banking Authority (EBA) therefore published a no action letter confirming NCAs should not prioritise supervisory or enforcement action in relation to processing IM model authorisation applications.

The ECB's FAQs provide further information on the application of the new EMIR IM model authorisation regime, including: (i) which banks are affected by the EBA's no action letter on the application of EMIR; (ii) the ECB's interim approach to processing IM model applications, until the EBA's technical standards/guidelines become applicable; (iii) the approach significant institutions should take to obtaining authorisations for IM models in light of EMIR 3; (iv) the approach to be taken when more than one legal entity within a banking group is using an IM model; and (v) the length of time an approval process is expected to take.

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