OSFI Offers Some Flexibility For Timing To Comply With Variation Margin Rules

OSFI published a letter on February 24, 2017 allowing for a transition period in limited circumstances to facilitate compliance with the requirements in Guideline E-22 on the exchange of variation margin. This is welcome news for those in the midst of negotiating credit support documentation in order to comply with the new margining requirements for non-cleared derivatives.

Scope of the Transitional Measure

OSFI indicated that federally regulated financial institutions (FRFIs) should prioritize their compliance efforts "based on the size of and risk inherent in the credit and market risk exposures presented by each counterparty," with full compliance by March 1, 2017 required for in-scope transactions between FRFIs and counterparties to whom they have "significant exposures." For other in-scope transactions, transitional relief from the March 1 deadline is available until September 1, 2017.  OSFI, however, stated that they still expect FRFIs to meet the variation