Regulators propose dropping initial‑margin exchange for sub‑€8 bn 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 remove the initial‑margin exchange requirement for counterparties below the €8 billion EMIR threshold, extending the exemption to both new and existing uncleared OTC derivatives.
The European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (ESMA) released a final report on 3 August 2026 that proposes to remove the obligation for counterparties whose exposure is below the €8 billion threshold under the European Market Infrastructure Regulation (EMIR) to exchange initial margin on any uncleared over‑the‑counter (OTC) derivative contract, whether the contract is new or already existing.
Background to the EMIR margin regime
Since EMIR entered into force, the European Commission’s Delegated Regulation (EU) 2016/2251 has required counterparties that exceed a notional‑value threshold of €8 billion to post initial margin for uncleared OTC derivatives. The aim is to mitigate systemic risk by ensuring that parties have skin in the game before a trade settles. Under the current rules, counterparties below the threshold are exempt from posting initial margin on newly‑entered contracts, but they must continue to exchange initial margin on contracts that were already in place before the exemption applied.
That distinction creates a two‑tier system: large market participants face a full bilateral margin regime, while smaller participants enjoy a partial exemption that still obliges them to manage margin on legacy contracts. The split has been criticised for adding operational complexity, especially for banks and insurers that manage a mixed book of contracts crossing the threshold.
What the ESA proposal changes
The ESA report, titled “Proposed amendments to bilateral margin requirements”, states that the proposed amendments aim to simplify the bilateral margin framework for counterparties that are subject to initial‑margin requirements and that are below the €8 billion threshold foreseen by EMIR. In practical terms, the amendment would eliminate the requirement to exchange initial margin for both new and existing contracts for any counter‑party whose exposure remains under €8 billion.
Key elements of the proposal are summarised in the table below.
| Element | Detail |
|---|---|
| Threshold | €8 billion |
| Proposed change | Eliminate initial‑margin exchange for both new and existing contracts for counterparties below the threshold |
| Authorities involved | EBA, EIOPA, ESMA |
| Report publication date | 3 August 2026 |
The proposal therefore removes the residual margin‑exchange duty that currently applies to legacy contracts. By extending the exemption, the ESAs argue that the bilateral margin framework will be simpler and that compliance costs for smaller market participants will be reduced.
Implications for market participants
For banks, insurance firms and pension funds that sit below the €8 billion notional‑value line, the amendment would mean a uniform exemption across their entire uncleared OTC derivative portfolio. The operational benefit is clear: a single margin‑management process can be applied, without the need to track which contracts are “new” and which are “existing”.
From a risk‑management perspective, the change does not alter the underlying exposure limits that trigger the full margin regime. Counterparties that cross the €8 billion threshold would still be required to post initial margin on all contracts, preserving the systemic‑risk buffer that EMIR was designed to create.
Regulatory‑compliance teams will need to adjust internal policies to reflect the new definition of “exempt counterparties”. Existing documentation that distinguishes between new and legacy contracts will become redundant. The ESAs have not provided a detailed implementation timetable, so firms must prepare for a transition that could be announced in the coming months.
Open questions and next steps
The ESA press release does not specify when the amendment would enter into force, nor does it outline the procedural steps required for the European Commission to adopt the draft Regulatory Technical Standards (RTS). Consequently, market participants should monitor forthcoming EU legislative updates for the exact date of effect.
Another area of uncertainty is the interaction with national supervisory practices. While the ESAs coordinate EU‑wide policy, individual member‑state regulators may have additional reporting or collateral‑management expectations that could affect how the exemption is applied in practice.
Finally, the proposal does not address whether the exemption would be reviewed periodically. Stakeholders have asked the ESAs to clarify whether future adjustments to the €8 billion threshold could be anticipated, especially if market‑wide notional values shift significantly.
In summary, the ESA’s final report of 3 August 2026 proposes a clear simplification: counterparties below the €8 billion EMIR threshold would no longer need to exchange initial margin on any uncleared OTC derivative contract, whether the contract is newly entered or already existing. The move is intended to ease operational burdens while preserving the risk‑mitigation objectives of the broader EMIR framework. Until the European Commission finalises the RTS and publishes an implementation date, firms should prepare internally for the likely regulatory shift and keep an eye on further guidance from the EBA, EIOPA and ESMA.