The Central Bank of Ireland has today, 19 December 2017, issued a statement setting out their intended response to the requirement for financial counterparties (which include UCITS and their managers and AIFs managed by authorised or registered alternative investment fund managers) to exchange mandatory variation margin (VM) for physically-settled FX forwards from 3 January 2018 pending the amendment of the Regulatory Technical Standards (RTS) on risk mitigation techniques for OTC derivatives not cleared by a central counterparty coming into effect. The Central Bank of Ireland has confirmed that it will apply its risk-based supervisory powers in the day-to-day enforcement of applicable legislation in a proportionate manner.

The Central Bank of Ireland has taken this position in response to the European Supervisory Authorities' (ESAs) statement which was issued on 24 November 2017 which recommended national competent authorities “generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in a proportionate manner”.

The ESAs' statement announced that they have commenced an urgent review of the margin RTS, with a view to proposing amendments to bring the VM requirements for physically-settled FX forwards in line with other key jurisdictions.

It is important to note that the other aspects of the EMIR margin rules will continue to apply to financial counterparties. Financial counterparties will be required to have in place risk management procedures for the timely, accurate and appropriately segregated exchange of collateral with respect to over-the-counter derivatives trades and have a compliant netting agreement in place for non-centrally cleared over-the-counter transactions.