PS23/25 – Margin requirements for non-centrally cleared derivatives: Amendments to BTS 2016/2251

1: Overview

1.1 This Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) policy statement (PS) provides feedback to responses the PRA and the FCA received to consultation paper (CP) 5/25 – Margin requirements for non-centrally cleared derivatives: Amendments to BTS 2016/2251. It also contains the PRA’s and the FCA’s final policy, in the form of amendments to the Binding Technical Standards (BTS) 2016/2251 (Appendices 2 and 3).

1.2 This PS is relevant to PRA-authorised banks, building societies, and PRA-designated investment firms in scope of the margin requirements under the European Market Infrastructure Regulation (UK EMIR). In addition, this PS is relevant to all FCA solo-regulated entities and non-financial counterparties in scope of the margin requirements under UK EMIR.

Background

1.3 In CP5/25, the PRA and the FCA (jointly ‘the regulators’) proposed to:

• implement an indefinite exemption for single-stock equity options and index options from the UK bilateral margining requirements;
• remove the obligation to exchange Initial Margin (IM) on outstanding legacy contracts where a firm subsequently falls below the in-scope thresholds; and
• permit UK firms to use another jurisdiction’s threshold assessment calculation periods and entry into scope dates to determine whether those transactions are subject to certain IM requirements, when transacting with a counterparty subjected to the margin requirements in that jurisdiction.^{footnote [1]}

1.4 In determining their policy, the regulators considered representations received in response to consultation, publishing an account of them and the regulators’ response (‘feedback’). Details of any significant changes are also published. In this PS, the ‘Summary of responses’ contains a general account of the representations made in response to the CP and the ‘Feedback to responses’ chapter contains the regulators’ feedback.

1.5 In carrying out their policymaking functions, the regulators are required to have regard to various matters. In CP5/25 the regulators explained how they had regard to the most relevant of these matters in relation to the proposed policy. The ‘Changes to draft policy’ section of this chapter refers to that explanation, taking into account consultation responses where relevant.

Summary of responses

1.6 The regulators received nine responses to CP5/25. The names of respondents to the CP who consented to their names being published are set out in Appendix 1. As well as those who consented, the regulators also received two responses where the respondents did not consent to the regulators publishing their names. Respondents generally welcomed the regulators’ three proposals, albeit some proposed some amendments. Respondents also suggested amendments to the BTS unrelated to the proposals under consultation.

Changes to draft policy

1.7 This policy statement takes account of how the policy advances the regulators’ objectives and significant matters that the regulators had regard to when finalising the policy. These are as set out in CP5/25, with the following changes/additional points:

• a minor change to the FCA instrument to align with the PRA instrument for consistency as explained in 2.18 below; and
• a minor change to the regulators’ instruments as explained in 2.17.

The regulators do not consider these changes to be ‘significant’ for the purposes of section 138I(5) Financial Services and Markets Act (FSMA) 2000.

1.8 When making rules, the regulators are required to comply with several legal obligations. In CP5/25, the regulators published their explanation of why the rules proposed by the CP were compatible with their objectives and with their duty to have regard to their regulatory principles.^{footnote [2]} The regulators have provided updated explanations, taking into account consultation responses below.

1.9 The final technical standards instruments were submitted to HM Treasury (HMT) for approval on 11 August 2025 and 15 August 2025 respectively, and HMT is deemed to have approved the PRA’s technical standards instrument on 11 September 2025 and the FCA’s technical standards instrument on 24 September 2025.^{footnote [3]}

1.10 Through this joint consultation the regulators have met the obligation to consult on changes to technical standards in which another regulator has an interest under s.138P(5) FSMA.

Implementation

1.11 The amendments to the BTS will be effective on 27 November 2025.

1.12 Unless otherwise stated, any remaining references to EU or assimilated legislation refer to the version of that legislation which forms part of assimilated law.^{footnote [4]}

2: The regulators’ feedback to responses

2.1 Before making any proposed technical standards, the regulators are required by FSMA to have regard to any representations made to them in response to the consultation, and to publish an account, in general terms, of those representations and their feedback to them.^{footnote [5]}

2.2 The regulators have considered the representations received in response to the CP. This chapter sets out our feedback to those responses, and our final decisions.

2.3 The sections below have been structured broadly along the same lines as the chapters of CP5/25. The responses have been grouped as follows:

• bilateral margin requirements for single-stock equity options and index options contracts;
• amendments for legacy contracts with counterparties that fall under the Average Aggregate Notional Amount (AANA) threshold; and
• amendments to allow firms to align dates with other jurisdictions.

Bilateral margin requirements for single-stock equity options and index options contracts

2.4 The regulators proposed to implement an indefinite exemption from the UK bilateral margining requirements in Article 38 of BTS 2016/2251 for single-stock equity options and index options.

2.5 Eight respondents supported the proposal, noting that it would ensure a level-playing field and support UK competitiveness.

2.6 One respondent opposed the proposal. Their substantive argument was that substituting collateral with capital lowers prudential standards as capital is not dynamic and cannot adapt to market movements as swiftly as margin. The regulators consider that both margin and capital have calculation delays, and neither result in instantaneous changes to financial resources. This was a point outlined in paragraph 3.2 of CP5/25 in the different underlying fundamentals between capital and margin, where capital is already available to the non-defaulter and is fungible across counterparties.

2.7 Having considered the responses, the regulators have decided to maintain the draft policy as set out in CP5/25. The regulators consider that implementing the proposal strikes the right balance in meeting the objectives of prudential safety and soundness and facilitating international competitiveness and the long-term growth of the UK economy. It also supports industry feedback and our aims of creating a level playing field for UK firms.

2.8 The regulators received no significant comments on the cost benefit analysis and therefore our assessment of the impact of our proposals remains unchanged.

Amendments for legacy contracts for counterparties that fall under the AANA threshold

2.9 The regulators proposed to remove the requirement to exchange IM for legacy contracts once a counterparty subsequently falls out of scope of the margin requirements.

2.10 Eight respondents supported the proposal. One respondent proposed a minor drafting change to the draft BTS amendment to ensure consistency with other parts of the BTS, which the regulators have adopted.

2.11 Having considered the responses; the regulators have decided to implement the proposals as consulted with the minor change to the text to achieve greater consistency within the instrument.

Amendments to allow firms to align dates with other jurisdictions

2.12 The regulators proposed to permit UK firms, when transacting with a counterparty subject to margin requirements in another jurisdiction, to use that jurisdiction’s threshold assessment calculation periods and entry into scope of IM dates to determine whether those transactions are subject to IM requirements.

2.13 Eight respondents supported the proposal. Two respondents asked the regulators to clarify whether the following scenarios are within the scope of the proposal:

• UK counterparties subject to margin requirements in the UK and in a third country; and
• non-UK counterparties indirectly caught by the margin rules of another jurisdiction.

2.14 The regulators confirm that the scenarios that the respondents raised are not in scope of the proposals.

2.15 The proposal only applies to UK counterparties transacting with a third-country counterparty that is subject to margin requirements in a third-country jurisdiction. The proposal does not seek to descope UK firms from UK requirements even if they are subject to requirements elsewhere, nor can it fill any gaps in a third-country regulatory regime.

2.16 Although the proposal helps to simplify cross-border transactions, full substituted compliance for cross-border transactions would be assessed as part of an equivalence decision by HMT.

2.17 While maintaining the outcomes proposed, the regulators do however propose to make minor amendments to the draft legal instruments annexed to the consultation. The regulators have made a small change to the language of Article 28 1a to ensure consistency across the drafting of the rest of the article.

2.18 The FCA has also amended its instrument to add to Article 28 paragraph 1D(c) the text ‘the option to release initial margin already collected’. This removes a minor drafting difference from the PRA’s instrument and does not have any impact on the have regards analysis, impact assessment or cost benefit analysis set out in CP5/25.

2.19 Having considered the responses, the regulators have decided to maintain the draft policy as set out in CP5/25.

Responses outside the scope of the CP proposals

2.20 One respondent requested the regulators also exempt bond forwards, equity forwards, equity basket options and accelerated sale repurchases from margin requirements. The respondent emphasised this would create a level playing field for products where there is a bona fide intention to physically settle the transaction as these are exempt in other jurisdictions. The regulators consider that this response is outside the scope of consultation. These contracts are currently in scope of the UK framework as well as most other jurisdictions.

2.21 One response raised general concerns about the quality of survey data. The comments did not appear to relate to the PRA survey related to this policy issue. The respondent also raised broader concerns around innovation in collateral management practices and the need to improve collateral transfer systems. These topics are not within the scope of the consultation.

2.22 One respondent asked that the regulators consider allowing counterparties to use not only the AANA assessment period but also other aspects of the third country’s framework (ie calculation method). Two respondents also noted cross-border frictions when operating in different jurisdictions. Allowing firms to use other elements of the third country’s margin framework (including the AANA assessment period) was outside the scope of the consultation.