S. Korea Announces Adjusted Schedule for Initial Margin Rules

Korea has adjusted its domestic implementation schedule for the incoming requirements, taking into account the one-year phased extension announced by BCBS and IOSCO in July.

South Korea’s FSC (Financial Services Commission) has adjusted its implementation schedule for initial margin requirements for non-centrally cleared derivatives, in line with the one-year phased extension granted in July.

The margin requirements were part of a series of reforms agreed by G20 countries to enhance stability and transparency in OTC derivatives markets in the aftermath of the 2018 global financial crisis.

Korea has adopted the margin requirements through administrative guidance issued by the FSS (Financial Supervisory Service), which is overseen by the FSC. Since March 2017, variation margin requirements are being applied to 76 financial institutions in the country, as of July 2019.

For initial margin requirements, the BCBS (Basel Committee on Banking Supervision) and IOSCO (International Organization of Securities Commissions) in March 2015 set a differential implementation schedule according to an institution’s aggregate average notional amount of non-centrally cleared derivatives.

In the 5th and final phase of implementation, initial margin requirements were scheduled to apply to a large number of entities for the first time in September 2020, i.e. firms with aggregate average notional non-centrally cleared derivatives exceeding USD/EUR 8 billion – a big step down from the September 2019 threshold of USD/EUR 750 billion.

In July, institutions with less than USD/EUR 50 billion in OTC derivatives were granted a postponement by the BCBS and IOSCO until September 2021 to meet the requirements, easing the impact of the new rules on smaller financial institutions and allowing financial supervisory authorities more time to prepare for domestic implementation.

Initial margin requirements were initially due to apply in Korea starting September 2020, given the smaller amount of non-centrally derivative transactions handled by domestic institutions. Taking into account the postponement, the September 2020 deadline will now only apply to domestic institutions with non-centrally cleared derivatives exceeding KRW 70 trillion (USD 57.8 billion / EUR 51.7 billion).

Institutions with non-centrally cleared derivatives exceeding KRW 10 trillion will now have until September 2021 to comply.

The FSS will hold a briefing on implementation plans for initial margin requirements to help financial institutions better prepare.

Meanwhile, the FSC plans to introduce a bill on margin requirements in August 2019, as the FSS guidelines are due to expire in August 2020. The bill will prescribe the margin requirements as a legal obligation and specify disciplinary measures for non-compliance.

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