ESAs propose to lift initial‑margin requirement for sub‑€8bn counterparties on all uncleared OTC contracts
The European Banking Authority, European Insurance and Occupational Pensions Authority and European Securities and Markets Authority have published a final report proposing to extend the initial‑margin exemption to both new and existing uncleared OTC derivative contracts for counterparties whose exposure is below €8 billion.
The European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (ESMA) – together the European Supervisory Authorities (ESAs) – published a final report on draft Regulatory Technical Standards on 3 August 2026, proposing to amend Delegated Regulation (EU) 2016/2251 and extend the initial‑margin exemption to both new and existing uncleared over‑the‑counter (OTC) derivative contracts for counterparties whose exposure is below the €8 billion threshold.
Current framework for bilateral margin requirements
Under the European Market Infrastructure Regulation (EMIR), counterparties that fall below the €8 billion exposure threshold are already exempt from exchanging initial margin on new uncleared OTC contracts. However, the same counterparties must continue to exchange initial margin on existing contracts, a distinction that creates a split regulatory burden. The ESMA press release dated 3 August 2026 confirms this split treatment and notes that the current framework “exempt[s] from exchanging initial margin for new uncleared over‑the‑counter (OTC) derivative contracts but continue[s] to exchange initial margin for existing contracts.”
Proposed amendment and its mechanics
The draft amendments aim to simplify the bilateral margin framework by removing the requirement to exchange initial margin for both new and existing contracts when a counterparty’s exposure is below €8 billion. The ESAs state that the change would “simplify the bilateral margin framework for counterparties that are subject to initial margin requirements and that are below the €8 billion threshold for exchanging initial margin foreseen by EMIR.”
In effect, the exemption would be extended uniformly, eliminating the current asymmetry. The table below summarises the treatment under the current regime and under the proposed amendment.
| Contract type | Current framework | Proposed amendment |
|---|---|---|
| New uncleared OTC contracts | Exempt from initial‑margin exchange | Exempt remains |
| Existing uncleared OTC contracts | Initial margin must be exchanged | Exempt from initial‑margin exchange |
Source: ESMA press release, 3 August 2026.
Rationale and expected impact
The ESAs justify the amendment on three grounds. First, it simplifies the bilateral margin framework, reducing operational complexity for market participants that fall below the €8 billion threshold. Second, it aligns EU treatment with other jurisdictions that already apply a uniform exemption, a point highlighted in the press release as “align[ing] EU treatment with other jurisdictions.” Third, the change responds to explicit requests from market participants seeking to lower regulatory burden, as the report notes that the amendments “aim to reduce regulatory burden.”
For smaller banks, insurance firms and pension funds that trade uncleared OTC derivatives, the extension of the exemption could translate into lower collateral management costs and reduced capital‑intensive margin posting. By removing the need to post initial margin on legacy contracts, firms can free up liquidity that would otherwise be tied up in collateral. The ESAs do not quantify the cost savings, but the logic follows directly from the removal of a mandatory cash‑flow requirement.
Timeline and procedural steps
The final report was submitted to the European Commission for endorsement on 3 August 2026. The Commission’s endorsement is a prerequisite for the amendments to become legally binding. The ESMA press release does not specify a target date for adoption, nor does it outline the subsequent implementation timetable. Consequently, market participants must await the Commission’s decision before adjusting their margin‑exchange processes.
Open questions
While the proposal is clear on the threshold and the scope of the exemption, several details remain unsettled. The exact date when the amendment would enter into force, the transitional arrangements for existing contracts, and any reporting obligations for counterparties are not addressed in the current packet. Additionally, the impact on cross‑border transactions involving non‑EU counterparties has not been discussed.
Analysts should therefore monitor the European Commission’s endorsement timeline and any accompanying technical specifications that may clarify these points.
Conclusion
In sum, the ESAs have put forward a concrete amendment to Delegated Regulation (EU) 2016/2251 that would extend the €8 billion initial‑margin exemption to both new and existing uncleared OTC derivative contracts. The move is positioned as a simplification measure, an alignment with international practice, and a response to market‑participant feedback. Until the European Commission endorses the proposal and publishes detailed implementation guidance, the change remains a proposal, but it signals a clear regulatory shift aimed at easing the burden on sub‑threshold counterparties.