All insurers must comply with the Australian Prudential Regulation Authority’s (APRA) new risk standard for non-centrally cleared derivatives by March 1.

They will have six months to finalise compliance with the new standard – CPS226.

“During the transition period, APRA expects entities to comply with the margin requirements on a best-endeavours basis and on-board counterparties in a risk-focused manner,” a letter to insurers from APRA EGM Policy and Advice Pat Brennan says.

“All qualifying transactions entered into from the official commencement date of March 1 are considered new transactions that are in scope for the variation margin requirements.”

Mr Brennan says APRA has made changes to the standard following consultation, with physically settled foreign exchange forwards and swaps excluded from the variation margin requirement.

The regulator may reconsider this based on changes to the global regulatory environment or material risks in the Australian financial system.

Among 22 submissions on the prudential standard were concerns about the regulation applying to Level 2 entities. Submissions argued the standard should not apply to non-financial entities that are not systemically important.

APRA has rejected this, but has made modifications to address any undue burden for non-financial entities.

The proposed $3 billion qualifying level for the exchange of variation margin has been retained, but APRA has proposed extending the phase-in timetable for lower-activity margining groups.

The variation margin requirements run from September 1 this year for margining groups with an average notional amount of non-centrally cleared derivatives outstanding above $4.5 trillion.

For those groups with an average notional amount of non-centrally cleared derivatives outstanding above $12 billion, it will start on March 1.

Next September 1 is the start date for margining groups with an average notional amount of non-centrally cleared derivatives outstanding above $3 billion.