FCA Supports European Regulators On Variation Margin Requirements For Certain FX Forwards

The UK Financial Conduct Authority ("FCA") will not require firms to continue putting processes in place to exchange variation margin ("VM") for physically settled foreign exchange ("FX") forwards (for certain transactions) in preparation for the January 3, 2018 MiFID II applicability date.

The FCA statement, within a "Latest EMIR News" update on the FCA website titled "Variation margin requirements under EMIR for physically settled FX forwards," supports a recent commitment by the European Supervisory Authorities ("ESAs") to revisit the Regulatory Technical Standards ("RTS") on risk mitigation techniques for OTC derivatives not cleared by a central counterparty. The ESAs determined that the implementation of the RTS via supervisory guidance led to certain jurisdictions adopting a scope of application that is more limited than the standards that are set to become applicable in the EU.