FIA Endorses Latest Tranche of EC Proposals Detailing Capital Requirements

The Futures Industries Association (FIA) has endorsed a recent string of proposals outlined in a European Commission’s (EC) directive detailing Capital Requirements Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term with regard to the cleared derivatives industry, according to an FIA statement.

The EC’s publication called for an amendment to Capital Requirements Directive 2013/36/EU, which included multiple changes and provisions, as put forth by a unified panel of global organizations, including the Basel Committee on Banking Supervision.

The publication is of particular interest to the cleared derivatives industry, which also details a comprehensive framework on affording better time constraints for the recognition of qualified central counterparties (QCCPs), as well as a new method for calculating the exposure value of derivatives transactions.

Changes Pass First Hurdle

Additional areas of note that were addressed focused on changes to the capitalization of exposures to CCPs, and an offset for client initial margin when calculating Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term exposure for clearing members. With widespread approval from the FIA and other entities, the latest amendments can now move to the European Parliament and the Council for a full review and consideration through its co-decision procedure.

According to Walt Lukken, President and CEO of FIA, in a recent statement on the amendments: "We're glad to see the EC recognizes that the leverage ratio without an appropriate offset for initial margin would disincentivize clearing.”

“Our markets are global and it's critical that the Basel Committee and other international and national regulators take similar action. If not, central clearing, a pillar of financial reform, will suffer. We’re looking forward to reviewing this proposal in more detail and considering its impact on the listed and cleared derivatives industry,” he added.

The full publication from the EC’s proposals can be read in full by accessing the following link.