Lessons Learned from the Uncleared Margin Rules

Topics: Client Relations, Data Analytics, Government, Legal Innovation, Regulatory Compliance Blogs, Risk Management

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Getting compliant with new regulations presents challenges for any financial firm or brokerage. But the sheer volume of repapering needed to comply with new rules governing margin requirements for non-centrally cleared derivatives (known as “uncleared margin rules,” or UMR) can present a host of unforeseen challenges.

In 2017, some early UMR efforts were plagued by significant delays, with many firms missing initial deadlines because they often underestimated the amount of time, talent, and technology needed to become compliant. Today, they shouldn’t make that mistake again. If your firm or brokerage needs to comply with UMR, take steps to ensure your company’s compliance initiatives stay on schedule by having enough resources committed to them.

Build a Strong Team & Give Them Time

You’ll need a resourceful team with defined priorities, streamlined processes, and management support. They have to be in place before the launch of a repapering initiative, and given plenty of time to work up to speed before regulatory deadlines become a source of pressure.

Bringing in experienced external providers can make a difference. Alternative Legal Service Providers (ALSPs) with project management expertise can advise your team how to reduce and avoid unnecessary processes, for example. Also, a UMR initiative shouldn’t be the time when an assistant general counsel gets up to speed on the nuances of derivatives paperwork. Choose people with experience in the field — it can make the difference between negotiations taking several weeks or just a couple of days.

Establish Strong Project Partnerships

Carefully choose internal and external project managers. Empower them to act beyond an administrative capacity, let them partner directly with stakeholders, and give them the autonomy to act.

At the same time, know who your stakeholders are before repapering starts. Your team shouldn’t still be answering the question of who owns X, or who can approve Y, two weeks before a deadline. Build a list of contacts and coordinate with internal leadership to ensure that stakeholders respond quickly when queried.

Your UMR repapering team likely will have to deal with the effects of turnover, as people change roles and leave organizations. Further, some counterparties won’t exhibit the urgency needed; so your team will need to follow up on these queries regularly, leveraging all available resources and relationships (e.g., salespeople, brokers) to speed up the process.

Design a Workable Process

Create effective playbooks — If you draft a playbook with processes and policies to cover how you’ll conduct repapering, get those plans in place prior to launch. Focus on creating templates that cover 75% to 80% of remediation instances and don’t waste time chasing perfection. The investment in a playbook reduces questions and provides guidance to the negotiators on your preferences and fallbacks.

Know your data — For UMR, if the book of business is unclear (e.g., how many documents need to be repapered and their details), that’s obviously a serious challenge. You may need to upgrade your data processing systems ahead of your repapering. The repercussions of having bad or missing data are likely greater than any technology upgrade costs.

Use technology wisely — Select a technology solution with the ability to handle on-the-fly changes that occur during a repapering initiative. Contract drafting tools also can deliver accurate and compliant drafts, and at a high volume.

Be flexible — With UMR, there are several options to bring parties into compliance. These include a new Variation Margin Credit Support Annex (VM CSA) Amendment or using the International Swaps and Derivatives Association (ISDA) Protocol. Each method has its benefits and drawbacks, so it would be smart to make sure your team is fluent in various methods so that they can reach agreements quickly with more counterparties.

Know jurisdictional differences — Regulations differ across jurisdictions for in-scope products, entities, and deadlines. Your team will need a workable sense of differences in global regulations and their potential impacts on repapering. Also, working across multiple time zones can create delays due to out-of-sync business hours. A global ALSP could help the process stay on track.

Don’t over-lawyer things — Once your repapering begins, focus on major confidentiality and regulatory issues. Don’t get too bogged down in negotiating the language of relatively minor points. Try to create a “line in the sand” (a firm position that you stick with through all negotiations) instead of having multiple fallback positions that could cause confusion for team members.

Streamline when possible — Try to streamline any applicable process during repapering. For example, reduce the need for negotiators to get specific approval on minor matters, keep team meetings to a minimum, and try to cut turnaround time when making remediation decisions. A day’s delay in responding can snowball into weeks of delays if it becomes routine.

Bringing Repapering to a Successful Conclusion

No matter how well you do in UMR repapering, you can always improve. So, if more regulatory changes are coming down the road, leverage what you’ve learned in this process to further improve your odds of meeting deadlines.


For more on this an other related regulatory subjects, visit Thomson Reuters Legal Managed Services, which provides financial trade documentation, contract management, regulatory change management, managed discovery, document review and advanced litigation services.

Its financial trade documentation solutions help global financial services corporations prepare for and meet existing and new regulatory requirements such as uncleared margin rules, MiFID II, Brexit, Interest Rate Benchmark Reform, Securities Financing Transactions Regulation and more.