The FCA have today issued their response to the ESAs 24 November FFX announcement. It is brief and is worth reading in full as a masterclass in ironic prevarication and understatement. Highlights below (emboldening is ours):
“The amendments to the RTS should become increasingly clear over time and we would expect firms to make their plans as a result. Although how they will be amended is not completely clear at this time, the proposals as outlined in the ESAs’ statement can be used by firms as an indication of what the amended requirements may look like.
Accordingly, we will not require firms whose physically settled FX forwards are likely to be outside the scope of the amended requirements to continue putting processes in place to exchange variation margin. This approach is subject to any further statements that may be issued by the ESAs or the FCA.
We, in any event, continue to recognise that the exchange of variation margin is a prudent risk management tool.”
It is sometimes difficult to know whether to laugh or cry; we prefer the former- Regulatory Analysis affords too few opportunities for humour. Market participants looking for direction on this substantive issue may think differently.