This afternoon OSFI issued an important letter allowing for transitional relief from the March 1, 2017 deadline for certain in-scope transactions with counterparties caught by Guideline E-22 to amend the terms of their credit support annexes (CSAs) in order to comply with new variation margin requirements.

Scope of the Transitional Relief

OSFI specifically indicated the following in the letter:

  • “For all counterparties to which a Covered FRFI has a significant exposure, OSFI expects Covered FRFIs to meet the requirements of Guideline E-22 on the exchange of variation margin by March 1, 2017.”
  • “For in-scope transactions with other Covered Counterparties, OSFI expects Covered FRFIs to meet the requirements of Guideline E-22 on the exchange of variation margin as soon as possible, and in no case later than September 1, 2017.”
  • “OSFI expects institutions to track their progress in meeting the requirements of Guideline E-22 on the exchange of variation margin and provide OSFI with status updates as requested.”

Coordinated Relief by Regulators

The regulators decision to provide this transition period follows on the heels of a request made of the regulators in recent weeks to introduce a transition period and take into account the fact that the goal of reducing global systemic risk will not furthered by disrupting the risk hedging activities of the buy-side firms like pension funds, investment funds and other corporations. In recent weeks disruption to trading activities looked increasingly likely to materialize as firms have struggled, despite their best efforts, to wrap up negotiations with their buy-side counterparties to put in place regulatory compliant CSAs, and with the buy-side firms also voicing their concerns that they would be unable to complete operational changes that would be required in order to meet the March 1st deadline.