OTC Derivatives Progressing but Gaps Remain: FSB

The latest progress report into the G20’s OTC derivatives markets reform programme has a familiar sound to it with the Financial Stability Board highlighting gaps in implementation, while talking of progress.

Observing the reform process was “well-advanced” into 2021, the FSB says in the report that in areas such as margin requirements for non-centrally cleared derivatives (NCCDs) and trade reporting, there had been minor progress with the number of jurisdictions implementing the necessary reforms unchanged.

The report says that 18 FSB member jurisdictions have higher final capital requirements for NCCDs (up from 15 in 2021), while interim higher capital requirements for NCCDs are now in force in all FSB member jurisdictions. On margin requirements, the FSB report says that 16 jurisdictions have rules in place, unchanged from the previous year, but that two others have published final standards and three expect to implement the requirements in 2023.

The number of FSB member jurisdictions where trade reporting requirements are in force remains unchanged at 23. In the remaining one jurisdiction, preparations for authorising a trade repository are ongoing. Some jurisdictions report they have further strengthened the functioning of trade repositories and the reporting requirements.

Another area where there has been little progress is central clearing, with the report finding the number of member jurisdictions with central clearing requirements in force unchanged at 17. The FSB says that some jurisdictions are taking steps toward implementation of mandatory central clearing, including authorisation of a central counterparty in the jurisdiction.

The number of jurisdictions with platform trading requirements in force remains unchanged at 13.

The report further notes that by September 2021 most jurisdictions had already withdrawn or not extended measures previously introduced in response to COVID-19 to alleviate the operational burden for OTC derivatives market participants, or had embedded changes to limit and mitigate excessive procyclicality into permanent supervisory frameworks. Since then, a few further withdrawals of temporary measures have been reported, as well as one case of temporary new measures that have since expired.