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Industry Reacts - UMR Phase 5 goes live (Asset Servicing Times)

News

Despite the impact of COVID-19, in-scope firms pulled together effectively over the last 12 months for Phase 5 of UMR, but this has not been without its challenges...

The Uncleared Margin Rules (UMR) represent a major change in the industry as this regulation aims to bring greater stability and transparency to the over-the-counter (OTC) derivatives market. UMR affects the trading of non-centrally cleared OTC derivatives and the future of collateral management. This regulation is so and the final Phase (Phase 6) is set for next year. 

Asset managers, pension funds and insurance companies are scheduled to come in-scope of UMR based on their volume thresholds either with Phase 5, which came into effect in September 2021, or Phase 6, which will come into effect in September 2022. 

UMR Phases 5 and 6 will introduce more and more buy-side firms to the world of regulatory initial margin (IM), which takes the form of collateral posted to help reduce risk to a given counterparty. UMR IM requirements seek to establish international standards for non-centrally cleared derivatives. 

On 1 September 2021, under phase 5, buy-side firms of all sizes had to effectively manage and optimise their liquidity and collateral needs with the right solutions and technology in place. 

These deadlines were initially set for a year prior, but in April 2020 the Basel Committee on Banking Supervision and the International Organization of Securities Commissions agreed to extend the deadline for completing the two final implementation phases of the margin requirements for non-centrally cleared derivatives by one year. 

The deferral came in response to the worldwide market disruption brought on by COVID-19. In the main, the delay was welcomed by industry participants as it allowed the financial industry to focus on its clients during the volatility of the pandemic. 

But with this extra time afforded, did industry participants experience a smooth transition for Phase 5?

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