EBA publishes validation requirements on initial margin models

EBA published its final draft RTS on IMMV under EMIR and a corresponding opinion.
These draft RTS provide supervisory procedures to ensure the prudent use of initial margin models for OTC derivatives. The EBA also called on co-legislators to consider the establishment of a central validation function in the EU.
The final draft RTS on IMMV aim to enhance compliance with the margin framework for non-cleared OTC derivatives, as set by the BCBS and the IOSCO. These RTS outline the supervisory procedures for validating initial margin models used for the exchange of initial margin. The procedures include a standard supervisory approach for larger banking counterparties and a simplified approach for smaller counterparties.
The phased-in implementation of the RTS requirements allows smaller counterparties more time to comply. Competent authorities and counterparties will also benefit from a transitional phase to facilitate the validation of existing models. In addition to the RTS, the EBA published an opinion calling for the establishment of a central validation function at the EBA to address coordination issues and suggesting that the scope of entities subject to the RTS should be reconsidered.