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.

The ESAs will seek to align the EU standards with those of other jurisdictions. This will include limiting the scope of required exchange of VM for physically settled FX forwards for transactions between institutions, and for certain transactions involving non-institutions on a risk-proportionate basis.

The ESAs stated that they will submit draft amendments to the European Commission within one month.

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