PRA and FCA consult on welcome amendments to the UK EMIR margin rules

The PRA and FCA have published a joint consultation on proposed amendments to the UK EMIR margin rules (CP5/25). In line with the secondary objectives of both regulators, the consultation paper demonstrates a focus on proportionate amendments to support international competitiveness and burden reduction for UK market participants. 

Exemption from margin for equity options

Most notably, the paper addresses the future treatment of single stock equity options and equity index options, proposing the replacement of the existing temporary exemption from margin for these products with an indefinite exemption. 

In reaching this decision, the regulators have considered the global fragmentation in implementation of margin requirements for these products, their cross-border nature, and the value of ensuring a level playing field from the perspective of the international competitiveness of the UK. 

The EU recently implemented a similar approach to exempting these transactions, as part of EMIR 3. Confirmation of the decision to avoid the consequences of expiry of the exemption, and the uncertainty associated with a rolling temporary exemption, is very welcome. 

Jurisdictional mismatches in application of initial margin and treatment of legacy transactions where a counterparty falls below the AANA threshold

The regulators have also taken the opportunity to respond to industry concerns regarding disproportionate operational burdens that can be associated with initial margin, particularly where a counterparty ceases to be subject to the requirement to exchange initial margin (as a result of falling below the EUR 8bn average aggregate notional amount (AANA) threshold). 

The proposal includes amendments to address, in certain circumstances, mismatches between UK and third country margin rulesets that may result in a counterparty ceasing to be subject to initial margin requirements under an applicable third country regime, sooner than would otherwise be the case under the UK margin rules.

In these circumstances, and more generally, where counterparties would no longer be required to exchange initial margin in relation to new transactions, the regulators propose that legacy transactions should also be exempted.

This approach to legacy transactions reflects the reduction in systemic risk associated with counterparties falling below the AANA threshold, and the significant operational challenges of continuing to exchange initial margin for these transactions. The reduction in operational complexity on cross-border transactions is also considered to benefit international competitiveness and growth of the UK economy. 

The consultation closes on Friday 27 June 2025.

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