Counterparties with less than €8 billion in derivatives activity would no longer be required to exchange initial margin on any uncleared over-the-counter derivative contract, new or existing, under proposals submitted by Europe's three financial supervisory authorities on 3 August 2026.

The European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), collectively the European Supervisory Authorities, published a final report recommending amendments to the European Commission's Delegated Regulation (EU) 2016/2251. That regulation sets the bilateral margin framework for uncleared OTC derivatives under the European Market Infrastructure Regulation, known as EMIR.

The gap in current rules

The existing framework contains an asymmetry that has annoyed smaller market participants for years. Counterparties that fall below the €8 billion clearing threshold are exempt from exchanging initial margin on new uncleared OTC derivative contracts. But they must continue to exchange initial margin on contracts that were already in place when the threshold was calculated. In practice, this means a firm that is small enough to be exempt from new margin obligations still has to operate collateral arrangements, custodian relationships and daily valuation processes for its existing book.

The operational burden is disproportionate for firms that regulators themselves have deemed too small to pose a systemic risk. Initial margin exchange requires bilateral collateral agreements, third-party custodians, and daily mark-to-market calculations. For a counterparty well below the €8 billion threshold, the fixed costs of maintaining that infrastructure can be significant relative to the portfolio being margined.

What the proposal changes

The ESAs' proposed amendments would eliminate the distinction between new and existing contracts for sub-threshold counterparties. If a counterparty is below the €8 billion threshold, it would no longer be required to exchange initial margin on any uncleared OTC derivative contract. The change applies across the board: no phase-in, no transitional arrangements for legacy positions.

This is a simplification rather than a loosening of the overall framework. The EMIR regime still requires variation margin exchange for all counterparties, regardless of size. Variation margin covers the day-to-day changes in mark-to-market value. Initial margin, by contrast, is designed to cover potential future exposure in the event of a default. Removing the initial margin requirement for small counterparties does not remove the variation margin obligation, which remains the primary tool for managing current credit exposure.

Why regulators are acting now

The ESAs frame the proposal as part of a broader effort to simplify EU financial regulation and reduce unnecessary burdens on market participants. The final report explicitly notes that the amendments respond to requests from market participants. Industry groups have long argued that the current treatment of existing contracts for sub-threshold counterparties was an oversight in the original phasing, not a deliberate policy choice.

The timing matters. The ESAs released the final report on 3 August 2026, weeks before the European Commission's scheduled review of the delegated regulation. By submitting the draft regulatory technical standards now, the ESAs are giving the Commission a concrete proposal to consider as part of that review, rather than waiting for a separate legislative process. The ESAs also say the changes support greater consistency with the treatment applied in other jurisdictions, a pointed reference to the fact that some major derivatives markets outside the EU do not impose initial margin requirements on smaller counterparties at all.

International alignment

The push for consistency with other jurisdictions is not incidental. The original EMIR margin framework was designed to implement commitments made by the Group of Twenty nations after the 2008 financial crisis. But the implementation has diverged. The United States, for instance, has adopted a different approach to the phase-in of initial margin requirements, and some jurisdictions have been more flexible in how they treat smaller counterparties and legacy contracts.

European market participants have complained that the EU's stricter treatment of existing contracts put them at a competitive disadvantage, particularly when trading with counterparties based in jurisdictions that do not impose equivalent requirements. The ESAs' proposal would bring EU rules closer to the international baseline, reducing the friction for cross-border derivatives activity.

The legislative path ahead

The final report and draft regulatory technical standards have been submitted to the European Commission, which must now decide whether to endorse them. If the Commission adopts the standards, they will then be subject to scrutiny by the European Parliament and the Council of the European Union before being published in the Official Journal of the European Union and becoming law.

That process typically takes several months, and there is no guarantee of smooth passage. The Parliament has previously scrutinised delegated acts on financial regulation closely, and some MEPs may question whether reducing margin requirements, even for smaller counterparties, is consistent with the EU's post-crisis commitment to reducing derivatives risk. The Commission itself may seek modifications before endorsing the draft.

For the ESAs, the proposal is a straightforward fix to a framework that was always meant to exempt smaller counterparties. For the Commission and the Parliament, it may be a more difficult judgment: whether the operational relief justifies even a marginal reduction in the margin coverage protecting the financial system. The ESAs' final report and draft regulatory technical standards are available on ESMA's website.

Organisations

European Banking Authority · European Insurance and Occupational Pensions Authority · European Securities and Markets Authority · European Commission · European Parliament · Council of the European Union