SA-CCR, IM relief and the fuzziness of good behaviour

The week on, February 15–21, 2020


EU banks rue SA-CCR mismatch with US

European clearers are stuck with CEM until 2021, but some US banks are reluctant to switch early

Margin exchange threshold relief: get out of jail free?

‘Game-changing’ IM exchange threshold relief may not be the phase-five free pass it first appears

Fuzzy data stalls ESG alpha hunt

Quants searching for ESG signals have reached very different conclusions. Mostly they blame the data

COMMENTARY: Good timing

Three stories this week underline, in various ways, the importance of keeping different countries’ financial regulations not only in line, but in step.

Regulators in the European Union and the US have chosen different implementation dates for the standardised approach to counterparty credit risk (SA-CCR). As a result, EU banks are more than a year behind their US rivals on SA-CCR, leaving them aggrieved at the thought of up to 15 months without the capital advantages that the transition to SA-CCR promises.

The US Federal Reserve’s introduction of new bank prudential rules – a tiered regime known as the tailoring rule – has hit problems as well. One of the key indicators wasn’t ready in time when the rule came into force last month, and now some foreign banks may have to revise their calculations twice this year.

And UK investment firms are facing a new outbreak of uncertainty relating to Brexit. The country has now officially left the EU, but is in a transition period in which it continues much as before. It won’t be leaving the ambit of EU financial regulators until the end of this year. After that, rules on equivalence will have critical importance for UK institutions wanting to operate in EU markets.

But the updated equivalence rules, amendments to the EU’s Markets in Financial Instruments Regulation, won’t actually come into effect until June 26, 2021 – leaving them in an awkward limbo state for six months. A temporary equivalence deal could fix the problem, but it would represent an additional hurdle for UK firms to pass.

And to make matters worse, that EU exit timetable is not fixed. It is possible (though the UK prime minister has promised it won’t happen) that the UK will request an extension (of unknown length) to the transition period, which could cover part or all of the limbo period. It’s possible (though few observers think it likely) that a UK-EU trade deal will be signed by the end of the year, and it could include an interim deal on equivalence.

And it’s possible, of course, that the UK will manage to get neither a deal nor an extension before the deadlines run out, and will crash out of the EU at the end of 2020; in which case equivalence for investment firms will be just one of a very large number of problems for the UK and its neighbours.

A lot of this is not really the fault of financial regulators. The UK’s move towards Brexit has been spraying doubt and uncertainty in all directions for almost four years now, and will continue to do so for some time. But the uncertainty involved in a staggered regulatory change – for whatever reason – is striking; two jurisdictions are aligned at the start, they aim for alignment at the end, but a difference even of just a few months in implementation dates can make for significant costs and competitive disadvantages.


117 EU banks are below their minimum requirements for eligible liabilities (MREL) – their tailored bail-in buffer amounts – by €178 billion ($192.9 billion). Shortfalls at seven of the 16 global systemically important bank resolution groups totalled €53 billion – EU banks short €178bn of MREL requirements



“People in China are still learning about the use of derivatives to hedge exposure rather than just for speculation – not just in the rates space but also when it comes to currency positions. The Chinese authorities clearly want to head in this direction, but it is taking quite a while to educate the market. Things need to happen step by step” – Stephen Chiu, Bloomberg Research

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