Key takeaways
- EMIR 3.0 introduces a centralised validation and authorisation regime for ISDA’s SIMM regulatory initial margin model, reshaping margin supervision across the Union.
- Impacted firms should have submitted a model approval request to their competent authority in order to obtain authorisation by end of 2026; otherwise firms may no longer be able to use SIMM and would need to revert to a less capital-efficient model (Grid).
The Regulatory Initial Margin model (RIM) landscape in the EU is evolving rapidly. The journey began on 7 December 2022, when the European Commission (EC) proposed amendments to the European Market Infrastructure Regulation (EMIR) to reduce exposures to systemically important third-country CCPs and improve the efficiency of Union clearing markets. Following intense negotiations, amendments to EMIR, known as EMIR 3.0, were formally agreed and published in the Official Journal at the end of 2024.
At the core of these changes, the legislation introduced a paradigm shift in how RIM models are supervised with a new authorisation regime for such models for non-centrally cleared OTC derivatives, including the widely used ISDA Standard Initial Margin Model (SIMM). For firms subject to RIM requirements, the coming months are decisive to avoid disruption by ensuring they obtain EU regulatory authorisation to use SIMM.
Regulatory Initial Margin model: the regulatory shift to centralised validation in the EU
Under the current framework, EU firms using pro-forma models like ISDA SIMM have relied on self-certification, a process where market participants independently verify that their margin calculations comply with regulatory standards. EMIR 3.0 replaces this system with a centralised validation function overseen by the European Banking Authority (EBA). The EBA’s new mandate, as outlined in EMIR 3.0, includes three critical components:
- A central validation function for pro-forma margin models, including ISDA SIMM.
- An authorisation regime for RIM models used by in-scope counterparties.
- Enhanced supervision of RIM models, with a particular focus on larger, more systemically important firms.
The scope of the new rules: who is affected?
The EBA’s authorisation regime applies to all EU financial counterparties (FCs) and EU non-financial counterparties above the clearing threshold (NFC+) that are subject to RIM requirements under Commission Delegated Regulation (EU) 2016/2251 including:
- Firms that use ISDA SIMM directly to calculate RIM for non-centrally cleared OTC derivatives.
- Firms that rely on third-party service providers that use SIMM to calculate RIM.
Crucially, the obligation extends to all legal entities within a group that fall under the RIM requirements, even if margin calculations are outsourced.
The path to authorisation: anticipated key milestones and deadlines
The EBA is establishing a structured target timeline for this transition, with critical provisional deadlines spanning 2026 and 2027. Missing any of these anticipated milestones could jeopardise a firm’s ability to continue using ISDA SIMM.
- By end of January 2026, Competent Authorities (CAs) must provide the EBA with a list of entities intending to use ISDA SIMM.
- By end of March 2026, firms must submit an annual update of their application data to their CA. This information will feed into the EBA’s new RIM Model Validation System, which is scheduled to launch in March 2026. The system will serve as the central platform for all subsequent interactions between firms and the EBA.
- By August 2026, SIMM applicants must complete onboarding onto the EBA validation system.
- By the end of 2026, the EBA will issue their initial decision regarding SIMM and the list of EU counterparties to whom the validation decision applies. This list will be legally binding: firms on the list may continue using ISDA SIMM without interruption while firms not on the list will no longer satisfy the regulatory requirements to use SIMM until they complete the authorisation process.
ISDA welcomes the opportunity to engage directly with the EBA to secure centralised authorisation of ISDA SIMM. We encourage SIMM users that are EU counterparties to submit their initial application to their competent authority, if not done already, and familiarise themselves with the upcoming deadlines and requirements, as known, to ensure their continued access to ISDA SIMM.
Tara Kruse, Global Head of Derivative Products and Infrastructure at ISDA
The consequences of non-compliance
The EBA has been explicit about the risks of failing to meet the authorisation requirements:
- Loss of SIMM access: firms not listed in the EBA’s end-of-year 2026 publication will no longer meet the regulatory requirements to use ISDA SIMM until they complete the validation process. This could force firms to revert to standardised margin schedules (“GRID”), which may be less capital-efficient and more operationally burdensome.
- Regulatory enforcement: use of SIMM without the required regulatory approval could trigger supervisory actions, including fines or other penalties under EMIR.
In parallel, the legislative process continues:
- The EBA will finalise the draft Regulatory Technical Standards (RTS) for the RIM Model Validation function. A public consultation is expected during the second quarter of 2026 for the adoption of the final RTS and publication in the Official Journal likely late in 2027.
- The EC will adopt a Delegated Act outlining the fee structure for the EBA’s validation services. The EBA had initially proposed a fee mechanism based on Average Aggregate Notional Amount (AANA), but following industry feedback, it has shifted to an “equivalent notional” concept, which is expected to be more proportionate for smaller firms. Firms should prepare for annual fees to cover the EBA’s validation costs, with the exact amounts to be confirmed once the Commission has adopted the Delegated Act.
The shift to centralised RIM model validation under EMIR 3.0 is a significant milestone in the evolution of derivatives regulation. The key to a smooth transition is early engagement with competent authorities and the EBA, as well as robust internal coordination to meet all the relevant deadlines.
Simon LAFORET, Senior officer in public and regulatory affairs at BNP
Paribas.