EC adopts Delegated Regulation on fees to validate pro forma models under EMIR

The European Commission has adopted a Delegated Regulation supplementing the European Market Infrastructure Regulation ((EU) No 648/2012) (EMIR), specifying the method for the determination of fees charged by the European Banking Authority (EBA) for the validation of pro forma initial margin models. EMIR, as amended by EMIR 3, requires that counterparties apply for authorisation to their competent authorities before using, or adopting a change to, a model for initial margin calculation used as a risk-mitigation technique for over-the-counter (OTC) derivative contracts not cleared by a central counterparty. The EBA is required to establish a central validation function for the elements and general aspects of pro forma models, and any changes to those. It can also charge an annual fee per pro forma model to counterparties using the pro forma models it validates.

The Delegated Regulation provides that the annual fee should be sufficiently high to cover all direct and indirect costs incurred by the EBA for validating the pro forma models and that all the fees charged should be set at a level to avoid a deficit or a significant accumulation of surplus. The annual fee to be paid to the EBA should be proportionate to the monthly average outstanding notional amount of non-centrally cleared OTC derivatives transactions over the last 12 months of the counterparties concerned. Counterparties should use the equivalent portfolio notional approach to determine the average notional amount, although they should also be allowed to use an alternative approach, provided that they can justify the choice for that alternative approach to their competent authority. In addition, the Delegated Regulation sets out the fees to be paid in the first years following the introduction and the application for validation of a new pro forma model. The Delegated Regulation will enter into force 20 days following publication in the Official Journal of the European Union.

Return to main website.