Engagement Summary
A top global investment bank engaged Monticello Consulting Group in early 2021 to lead the change management program and help implement the Basel Committee of Banking Supervision (BCBS) and International Organization of Securities Commissions (IOSCO) requirements for Uncleared Margin Rules (UMR) Phase 5 and Phase 6. In April 2020, the regulators announced their revised final policy framework that provided a one-year delay for Phase 5 and Phase 6 firms. Phase 5 (>$50B notional) Initial Margin compliance went live on September 1, 2021, and Phase 6 (>$8B notional) compliance will be due on September 1, 2022. Monticello’s client has taken this opportunity to look holistically at their collateral management processes and operational strategies to meet their governance and infrastructure needs.
The last two phases of UMR introduced more buy-side firms to the world of Regulatory Initial Margin (Reg IM). The number of counterparties brought into scope for UMR increased from a few dozen large banks and broker-dealers under Phase 4 to thousands of trading counterparties under Phase 5. International Swaps and Derivatives Association’s (ISDA) estimates in the table below highlight the fact that Phase 6 is expected to phase in almost 2.5x the number of clients currently caught by Phase 5’s Aggregated Annual Notional Amount (AANA) range.
Monticello stood up and led the Program Management Office, managing individual workstream deliverables, tracking key program-level milestones, and identifying and managing risks and issues through sound governance practices. Additionally, Monticello established an effective stakeholder communication and training plan. Thus, by implementing a dedicated Program Management Office to centrally manage the governance structure across program workstreams, Monticello’s client was successfully able to meet Phase 5’s regulatory compliance deadline. Since October 2021, Phase 6 planning has focused on lessons learned and best practices from Phase 5 in order to set the program up for success as the program embarks upon implementing a regime for a set of in-scope clients on a much larger and more diverse scale.
Case Study Detail
PROJECT BACKGROUND
UMR is a set of rules that apply to the exchange of margin (collateral) between counterparties trading over-the-counter (OTC) derivatives. The rules were developed in response to the 2008 financial crisis. OTC derivatives are traded under the legal framework provided by ISDA, with the associated collateral terms defined in that ISDA’s Credit Support Annex (CSA). The Rules apply to variation margin (VM) and initial margin (IM). The VM rules went into effect in 2017, whereas the IM rules have continued to be phased in since 2016. Since the first OTC derivatives margin rules rolled out in 2016, large broker-dealers and global banks have faced increasing compliance costs, all the while competing with central counterparty clearinghouses. To stay relevant in the OTC business, our clients have invested significantly in program governance, legal and client outreach resources along with technology solutions aimed at streamlining client onboarding and enhancing trade monitoring controls for IM utilization.
ENGAGEMENT OBJECTIVES
Program Management & Change Management
Monticello led the Program Management Office (PMO) with the bank’s Markets and Transformation Organization to ensure all transformation and changes related to the client’s systems and processes were delivered in line with business, operations, and regulatory mandates. The PMO’s roles and responsibilities for this program included the following:
Managing and guiding workstreams project plans, executive management reporting routines, and ongoing program governance based on regulatory requirements and alignment with business needs.
Identifying and managing program assumptions, key issues/risks, and internal/external critical dependencies.
Managing adherence to overall enterprise project management standards.
Leading daily stand-ups with the Client Outreach Team and Workstream Project Managers to successfully meet critical milestones in a timely manner.
Training & Resource Allocation
Coordinating efforts to create a training manual and Phase 5 lessons learned in preparation for Phase 6.
Creating a template and building metrics for client outreach resource allocation between Phase 5 and Phase 6.
BUSINESS VALUE
With UMR’s six-year extensive implementation journey approaching its last leg, Monticello continued to leverage its project management toolkit and effective stakeholder communication practices to help our client successfully navigate the complex regulatory directives and turn challenges into opportunities to build effective business solutions. Our consultants partnered with cross-organizational client teams and governed the end-to-end execution for the UMR Phase 5 regulatory rules. With deep regulatory knowledge, change management expertise, and proven governance standards, Monticello successfully ensured our client could maintain competitive advantage over industry peers while exhibiting sound market conduct and compliance within the regulatory landscape.
