The European Banking Federation (EBF) is planning to update its European master agreement (EMA), which allows the netting of derivatives and repos, to reflect recent regulatory updates. The move follows calls from market participants and could provide an EU law option for derivatives users after the UK leaves the European Union.
The EBF is also considering obtaining updated netting opinions for the EMA centrally. National banking associations had been left to obtain their own netting opinions and keep them updated, but this has been patchy.
The move comes after the European Financial Market Lawyers’ Group – a collection of in-house lawyers at European banks, chaired by the European Central Bank – called in a letter on August 31 for the EBF to update the documentation to secure its long-term viability.
Some derivatives users may want to have the option of using an agreement governed by an EU law in the wake of Brexit. For instance, it could help circumvent problems raised by Article 55 of the EU’s Bank Recovery and Resolution Directive. This states that contracts with European Economic Area financial institutions must contain a clause stating that a regulator may bail in some of those institution’s liabilities in a crisis.
In addition, the EMA is useful for corporates in countries that lack their own local law agreements, such as Bulgaria. Non-Isda agreements make up a small but noticeable proportion of derivatives documentation. Isda’s 2013 margin survey found these types of agreements make up around 13% of all collateral documents.