EMIR Initial Margin Reporting – What the New IM Model Authorisation Regime Means for Your Firm

Last updated: March 2026

If your firm uses ISDA SIMM to calculate initial margin on non-centrally cleared OTC derivatives, you have operated for years without needing formal supervisory approval for that model. That changes under EMIR 3. For the first time, every counterparty using an IM model must obtain prior authorisation from its competent authority. If the model is a pro forma model like SIMM, the EBA must validate it centrally before your national supervisor can sign off. Get this wrong, and you cannot legally use the model to calculate your margin obligations.

The EBA launched a consultation in March 2026 on the two regulatory products needed to operationalise this regime: the draft RTS on the authorisation procedure and the guidelines on pro forma model validation. These are not abstract policy discussions. They define the assessment criteria your competent authority will apply and the process the EBA will follow when validating a pro forma model like SIMM.

This guide walks through the EMIR initial margin framework, explains what EMIR 3 changes, breaks down the EBA consultation, and covers what compliance officers and risk managers at EU financial institutions need to do now.

Related reading: EMIR Reporting Explained

How Initial Margin Works Under EMIR

EMIR requires counterparties to exchange initial margin (IM) and variation margin (VM) on OTC derivative contracts that are not cleared through a central counterparty. Variation margin covers the current mark-to-market exposure. Initial margin covers potential future exposure if one counterparty defaults and the surviving counterparty needs time to close out or replace the positions.

The legal foundation sits in Article 11 of Regulation (EU) No 648/2012 (EMIR), supplemented by Delegated Regulation (EU) 2016/2251, which the three ESAs developed jointly. This delegated regulation sets out the detailed rules: who must exchange margin, how much, what collateral counts, and what the models must look like.

Two Methods for Calculating IM

Counterparties have two options for calculating the initial margin amount:

The standardised schedule uses fixed percentages of gross notional by asset class. Credit derivatives pay 10%. Equity derivatives pay 15%. Interest rate derivatives pay between 1% and 4% depending on residual maturity. Commodity derivatives pay 15%. The schedule is conservative by design. It recognises limited netting through a net-to-gross ratio (NGR) adjustment, but it does not capture portfolio-level diversification.

The model-based approach allows counterparties to use quantitative models that calculate a 99th percentile confidence interval over a 10-day margin period of risk, calibrated to a period of significant financial stress. This produces lower margin numbers for diversified portfolios, which is why most large counterparties prefer it.

The ISDA SIMM

In practice, one model dominates: ISDA SIMM (Standard Initial Margin Model). ISDA developed SIMM as an industry-standard methodology based on risk factor sensitivities, covering interest rate risk, credit spread risk, equity risk, commodity risk, and FX risk. Its conceptual framework draws from the FRTB standardised approach. Risk weights and correlations are recalibrated annually by ISDA, with off-cycle updates when market conditions warrant them.

Roughly 85% of EU counterparties subject to IM requirements use SIMM, according to the EBA’s own survey from October 2024. That concentration is precisely why the new authorisation regime matters. One model, used by hundreds of firms across the EU, previously operated without any formal supervisory validation at the EU level.

Who Must Exchange Initial Margin

The IM obligation applies to financial counterparties (FCs) and non-financial counterparties above the clearing threshold (NFC+) when their group-level aggregate average notional amount (AANA) of non-centrally cleared OTC derivatives exceeds EUR 8 billion. The EUR 8 billion threshold was the final phase-in level, which took effect on 1 September 2022.

The AANA is calculated over March, April, and May each year (and separately over September, October, and November). If a group’s AANA exceeds the threshold in either calculation period, it becomes subject to IM exchange obligations starting four months after the end of the relevant calculation period.

In practice, this means banks, large investment firms, insurance companies with substantial derivatives books, UCITS and AIFs using OTC derivatives for hedging or portfolio management, and some commodity firms all fall within scope.

What EMIR 3 Changes for Initial Margin Models

Regulation (EU) 2024/2987 (EMIR 3) was published in the Official Journal on 4 December 2024 and entered into force on 24 December 2024. Among its many amendments, three provisions transform how IM models are supervised.

Prior Authorisation by Competent Authorities

Article 11(3) of EMIR, as amended by EMIR 3, now states that financial counterparties and NFC+ entities “shall apply for authorisation from their competent authorities before using, or adopting a change to, a model for initial margin calculation.”

Before EMIR 3, Delegated Regulation 2016/2251 set requirements for IM models, and competent authorities had the power to deny the use of a model that did not comply. But there was no formal prior approval process. The difference matters. Under the old regime, you used your model and waited to see if the supervisor objected. Under the new regime, you cannot use a model until the supervisor says yes.

I have seen firms treat model governance as a checkbox exercise under the old approach. That will not work anymore. The authorisation requirement creates a hard gate.

EBA Central Validation for Pro Forma Models

Article 11(12a) introduces a new concept: the “pro forma model.” EMIR defines this as an “initial margin model established, published, and revised through market-led initiatives” that is used “industry-wide” and “by a large number of Union counterparties.” In plain terms, this means ISDA SIMM.

For pro forma models, the process has two layers. First, the EBA validates the model centrally. It assesses calibration, design, coverage of instruments, asset classes, and risk factors. Second, once the EBA validates the pro forma model, each counterparty still needs authorisation from its national competent authority to use it. The competent authority may only grant that authorisation if the EBA has validated the underlying pro forma model.

The EBA must set up a “central validation function” for this purpose, including a central database where counterparties submit applications and data. Until ESMA establishes its central database and confirms it covers Article 11 requirements, applications go directly to the EBA under transitional arrangements (Article 89(11) of EMIR).

Supervision Based on Size

EMIR 3 also introduces differentiated supervision based on portfolio size. Larger counterparties receive greater supervisory scrutiny. The EBA’s December 2024 Opinion (EBA/Op/2024/09) clarified that competent authorities should expect applications from all counterparties currently subject to IM exchange, since model changes occur frequently and the first change after EMIR 3 enters into force triggers the authorisation requirement.

The EBA Consultation on IM Model Authorisation

In March 2026, the EBA launched a consultation on the two regulatory products needed to make the authorisation regime operational.

Draft RTS on the Authorisation Procedure

The RTS specify how competent authorities should assess IM model authorisation applications. They cover what a competent authority must verify, including model design, calibration methodology, backtesting results, stress testing, risk factor coverage, and ongoing monitoring. They also address how competent authorities handle model changes, distinguishing between material and non-material modifications.

The RTS introduce a proportionality threshold at EUR 750 billion AANA. Counterparties (that are institutions under the CRR definition) with an AANA above EUR 750 billion face fully-fledged model validation by their competent authority. Below that threshold, a simplified assessment applies. The EUR 750 billion level was chosen because it covers the great majority of total non-centrally cleared OTC activity. If your firm sits above it, expect the most intensive supervisory scrutiny of your SIMM implementation.

The framework draws on well-established model approval practices from the CRR world, particularly the assessment methodology for internal models for market risk (FRTB-IMA). However, the IM model context is different. These are bilateral margin models, not capital models. The risk being measured is counterparty credit exposure over a 10-day close-out period, not a firm’s own trading book risk over a specified horizon.

Guidelines on Pro Forma Model Validation

The guidelines detail how the EBA will carry out its central validation of pro forma models. They address the scope of validation (model calibration, risk factor coverage, correlation assumptions, stress testing of model parameters), the process for annual recalibrations, and how the EBA will communicate validation outcomes to competent authorities.

From a practical standpoint, the guidelines also clarify the interaction between EBA validation and national authorisation. Competent authorities rely on the EBA’s assessment of the pro forma model’s general aspects but retain responsibility for assessing whether the individual counterparty’s implementation is adequate.

Fees for Pro Forma Model Validation

EMIR 3 requires the EBA to charge annual fees to counterparties using validated pro forma models. Article 11(12a) specifies that fees must be “proportionate to the monthly average outstanding notional amount of non-centrally cleared OTC derivatives over the last 12 months” of each counterparty using the validated model. However, the EBA’s technical advice on fees has shifted away from a direct AANA calculation. Following industry feedback that sourcing and aggregating raw notional data across multiple systems is operationally burdensome, the EBA now proposes an “Equivalent Portfolio Notional” approach: counterparties convert their total pro forma model-calculated IM amount into an equivalent notional using the highest weighted percentage from the standardised schedule in Delegated Regulation 2016/2251. This is simpler to calculate but produces a different distribution of fees across counterparties than a direct notional-based approach would.

The EBA estimated its annual costs for the central validation function at EUR 1.5 to 2.0 million for the first full year. These costs cover a dedicated team of experts, IT infrastructure for the central database, processing of applications, on-site reviews, and ongoing monitoring.

How Fees Are Calculated

The fee structure distributes EBA costs across all counterparties using a given pro forma model. Larger firms pay more because the fee is proportional to their equivalent notional. The EBA proposed that counterparties inform the EBA by 31 March each year whether they use a pro forma model, with the 12-month average notional amount calculated on a reference period ending 31 December of the previous year.

For a brand-new pro forma model, the EBA proposed a fixed fee of EUR 500,000 for the first year of validation, shared equally among all counterparties applying to use that model. Applications for new models are expected by 30 September to allow time for invoicing and fee collection.

I expect smaller counterparties to feel this disproportionately. Even though the fee is notional-weighted, the operational cost of calculating the monthly average outstanding notional amount, preparing the data, and submitting it may exceed the fee itself for phase 5 and phase 6 firms with small uncleared portfolios.

The Authorisation Process Step by Step

For a firm using ISDA SIMM in the EU, the authorisation process under EMIR 3 works as follows.

Step 1: EBA Validates the Pro Forma Model

The EBA assesses the SIMM methodology centrally. It reviews the model design, calibration, risk factor coverage, and recalibration methodology. The EBA began its central validation of ISDA SIMM on 1 March 2026. Once validated, the EBA communicates the result to all competent authorities. Individual counterparties do not drive this step, but they must submit data to the EBA via the central database.

Step 2: Counterparty Submits Application to Competent Authority

Each firm submits a formal application to its national competent authority. The application covers the firm’s specific implementation of SIMM: how it sources sensitivity data, which systems calculate sensitivities, how it handles product coverage gaps, and how it backtests results against actual margin outcomes.

Step 3: Competent Authority Reviews

The competent authority assesses the firm-specific implementation. It does not re-validate the generic SIMM methodology (that is the EBA’s job), but it verifies that the firm applies SIMM correctly, has adequate governance, conducts appropriate backtesting, and handles model limitations properly.

Step 4: Authorisation Granted or Denied

If the competent authority is satisfied, it grants authorisation. If it identifies issues, it may require remediation before granting approval or deny the application. The firm cannot use the model until authorisation is granted.

Step 5: Ongoing Monitoring and Change Management

Authorisation is not a one-time event. SIMM is recalibrated annually by ISDA. Each recalibration constitutes a model change. Depending on how the RTS classifies changes (material vs. non-material), the firm may need to notify or re-apply to its competent authority after each recalibration. This creates an annual cycle of model change management that did not exist before.

In practice, I think this will be the most operationally demanding part of the new regime. SIMM recalibrations happen every December. If each recalibration triggers a re-authorisation, compliance teams will need to build a recurring process, not just handle a one-off application.

What Falls Under “Model Changes”

The distinction between material and non-material model changes will determine how much ongoing effort the authorisation regime requires.

A material change might include a fundamental revision to the SIMM risk weight structure, the addition of a new asset class, or a significant change to the correlation framework. These would likely require a fresh authorisation application.

A non-material change might include routine annual recalibrations of risk weights within the existing framework, or minor adjustments to sensitivity calculation methodologies. These might require notification rather than full re-application.

The EBA’s consultation papers will define these categories precisely. The industry’s concern, expressed in multiple consultation responses, is that if annual SIMM recalibrations are classified as material changes, the burden becomes unsustainable. Competent authorities would receive hundreds of re-application filings every January, all based on the same ISDA recalibration.

The Standardised Schedule Alternative

Counterparties that choose not to use an IM model can use the standardised schedule from Delegated Regulation 2016/2251. The schedule applies fixed percentages of gross notional by asset class, adjusted by the net-to-gross ratio:

Net standardised IM = 0.4 x Gross IM + 0.6 x NGR x Gross IM

The standardised schedule does not require authorisation because it is a fixed regulatory calculation, not a model. However, it produces significantly higher margin amounts than SIMM for diversified portfolios. The BCBS-IOSCO quantitative impact study found that standardised schedule amounts can be 6 to 11 times higher than model-based amounts. That difference directly affects collateral requirements and funding costs.

For smaller counterparties facing the cost and complexity of the new authorisation regime, the standardised schedule becomes a legitimate question. If the operational burden of maintaining IM model authorisation outweighs the collateral savings from SIMM, the schedule may be the rational choice. I expect some phase 5 and phase 6 firms to revisit this calculation once the consultation finalises.

Luxembourg and the CSSF

For Luxembourg-based counterparties, the CSSF is the competent authority that will handle IM model authorisation applications. This includes Luxembourg credit institutions, investment firms with significant OTC derivatives activity, and management companies (ManCos) or AIFMs whose funds use OTC derivatives and fall above the AANA threshold.

Luxembourg Fund Structures

Luxembourg’s fund industry creates a specific dynamic. A UCITS or AIF managed by a Luxembourg ManCo may use OTC derivatives for hedging or efficient portfolio management. If the fund’s group-level AANA exceeds EUR 8 billion, it is subject to IM exchange requirements. If it uses SIMM, it will need authorisation.

The practical question is who applies. The counterparty to the derivative contract is typically the fund itself (or the ManCo acting on behalf of the fund). The CSSF will need to process these applications, and the fund’s depositary and administrator may need to provide supporting data on notional amounts and margin calculations.

CSSF Supervisory Approach

The CSSF has historically taken a pragmatic approach to EMIR implementation in Luxembourg. It has issued circulars and FAQs on EMIR reporting obligations and coordinates with ESMA on cross-border supervision. For IM model authorisation, the CSSF will follow the EBA’s RTS once adopted, but firms should expect the CSSF to require complete and well-documented applications.

Luxembourg firms should not wait for the final RTS to start preparing. The CSSF typically expects firms to anticipate regulatory changes and begin gap analyses well before implementation deadlines.

Timeline and Key Dates

The following dates frame the IM model authorisation regime:

EMIR 3 (Regulation (EU) 2024/2987) entered into force on 24 December 2024. The IM model authorisation provisions apply from this date, meaning any new model or model change adopted after 24 December 2024 requires prior authorisation.

The EBA published its Opinion on the application of EMIR 3 to IM models (EBA/Op/2024/09) on 17 December 2024, providing interpretive guidance on the transitional regime.

Existing IM models in use before EMIR 3 entered into force may continue to be used without seeking authorisation. The first authorisation application for each counterparty will be triggered by the first change to its existing model after the entry into force.

The EBA launched its consultation on the authorisation procedure (draft RTS) and pro forma model validation (guidelines) in March 2026. The consultation period typically runs for three months.

The Commission requested EBA technical advice on the delegated act on fees by Q2 2025. The fee structure for pro forma model validation is being developed in parallel.

What Compliance Officers Should Do Now

Inventory Your IM Models

Document every IM model your firm uses. For most firms, this means ISDA SIMM, but some may use proprietary models or a combination. For each model, record: which version you use, how you implement it, who maintains it, and when the last material change occurred.

Map Your Application Requirements

Review the EBA’s draft RTS requirements for model authorisation applications. Identify the data you can produce today and where gaps exist. Pay particular attention to backtesting data, sensitivity validation, and governance documentation.

Assess the Fee Impact

Calculate your 12-month average outstanding notional of non-centrally cleared OTC derivatives for which IM is calculated using a pro forma model. This number determines your share of the EBA’s annual costs. If you are a smaller counterparty, compare the cost of maintaining model authorisation (fees plus operational burden) against switching to the standardised schedule.

Engage with the Consultation

The EBA consultation is open. If the classification of model changes, the application process, or the fee structure creates issues for your firm, respond. Industry responses to previous EMIR consultations have led to meaningful adjustments, including the phase-in schedule and the EUR 8 billion threshold.

Prepare for Annual Recalibration Cycles

Build a recurring process for SIMM recalibration events. Each December, ISDA publishes updated risk weights and correlations. Under the new regime, each recalibration may trigger a notification or re-application. Your model governance framework needs to accommodate this annual cycle.

Frequently Asked Questions

Does the new authorisation regime apply to variation margin models?

No. Variation margin is based on mark-to-market valuation, not modelling. The authorisation requirement applies only to initial margin models used for non-centrally cleared OTC derivatives.

If we already use SIMM, do we need to apply immediately?

No. Existing IM models in use before EMIR 3 entered into force (24 December 2024) may continue without authorisation. The obligation is triggered by the first model change after that date. Given that SIMM is recalibrated annually, most firms will need to apply within the first year or two.

Who validates SIMM – the EBA or the CSSF?

Both, but at different levels. The EBA validates the generic SIMM methodology as a “pro forma model” through its central validation function. The CSSF (or whichever national competent authority applies) then authorises each individual counterparty’s implementation of the validated pro forma model.

What if our competent authority has not set up the application process yet?

The EBA’s Opinion from December 2024 noted that competent authorities should expect applications soon after EMIR 3 enters into force. Transitional arrangements under Article 89(11) of EMIR allow applications to go directly to the EBA until ESMA’s central database is operational. Firms should contact their competent authority to understand the expected timeline.

Can we use the standardised schedule instead to avoid the authorisation process?

Yes, but at a cost. The standardised schedule produces significantly higher margin requirements than SIMM for diversified portfolios. The BCBS-IOSCO analysis showed standardised amounts can be 6 to 11 times higher. Firms should model the collateral impact before switching.

How much will the EBA fees cost?

The EBA estimated annual costs of EUR 1.5 to 2.0 million for the central validation function, distributed across all counterparties using the validated pro forma model. Each firm’s share is calculated using an “Equivalent Portfolio Notional” derived from the firm’s model-calculated IM amount, rather than raw notional amounts. For the first validation of a new pro forma model, the EBA proposed a fixed fee of EUR 500,000 shared among applicants.

Does this affect intragroup transactions?

Intragroup transactions that benefit from an exemption under Article 11 of EMIR are not subject to margin exchange requirements and therefore fall outside the scope of IM model authorisation. However, if the intragroup exemption is not granted or does not apply, IM exchange (and potentially model authorisation) is required.

Related Articles

• EMIR Reporting Explained – A full guide to EMIR trade reporting obligations, covering who reports, what data is required, and how the reporting regime works in practice.
• MiFIR Transaction Reporting – An overview of MiFIR transaction reporting requirements, covering the relationship between EMIR and MiFIR for derivatives reporting.
• COREP Reporting Explained – A guide to COREP prudential reporting, relevant for institutions whose capital requirements are affected by counterparty credit risk from derivatives positions.
• Large Exposures Reporting – Covers COREP large exposures templates, relevant where derivatives counterparty exposures contribute to concentration risk.
• DORA Register of Information – Relevant for firms whose IM model infrastructure relies on third-party ICT service providers subject to DORA oversight.

Key Takeaways

• EMIR 3 introduces, for the first time, a mandatory prior authorisation regime for initial margin models used on non-centrally cleared OTC derivatives.
• Pro forma models like ISDA SIMM require dual-layer approval: EBA central validation of the model methodology, plus national competent authority authorisation of each firm’s specific implementation.
• Existing IM models in use before 24 December 2024 are grandfathered, but the first model change triggers the authorisation requirement.
• The EBA will charge annual fees based on an “Equivalent Portfolio Notional” derived from each counterparty’s model-calculated IM amount, replacing the originally proposed direct AANA calculation.
• The RTS set a EUR 750 billion AANA threshold: firms above it face fully-fledged model validation, while those below qualify for simplified assessment.
• The standardised schedule remains available without authorisation but produces significantly higher margin amounts (6 to 11 times model-based figures for diversified portfolios).
• Annual SIMM recalibrations may trigger notification or re-application requirements, creating a recurring compliance cycle.
• Luxembourg firms should engage with the CSSF early and begin preparing application documentation now, rather than waiting for final rules.

Sources and References

• Regulation (EU) No 648/2012 (EMIR) – European Market Infrastructure Regulation on OTC derivatives, central counterparties and trade repositories https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012R0648
• Regulation (EU) 2024/2987 (EMIR 3) – Amending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country CCPs and improve the efficiency of Union clearing markets https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32024R2987
• Delegated Regulation (EU) 2016/2251 – RTS on risk-mitigation techniques for OTC derivative contracts not cleared by a CCP https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32016R2251
• EBA Opinion on the application of EMIR 3 with respect to Initial Margin models (EBA/Op/2024/09, 17 December 2024) https://www.eba.europa.eu/publications-and-media/press-releases/eba-consults-regulatory-products-initial-margin-model-authorisation
• EBA Final Draft RTS on Initial Margin Model Validation (EBA/RTS/2023/04, 3 July 2023) – Superseded by the March 2026 consultation draft RTS, which incorporates EMIR 3 requirements including the prior authorisation regime and EUR 750 billion proportionality threshold
• EBA Technical Advice on fees for the validation of pro forma models under EMIR – Technical advice to the Commission on the delegated act on fee methodology
• BCBS-IOSCO Margin Requirements for Non-Centrally Cleared Derivatives (BCBS d317, March 2015) https://www.bis.org/bcbs/publ/d317.htm

Disclaimer: The information on RegReportingDesk.com is for educational and informational purposes only. It does not constitute legal, regulatory, tax, or compliance advice. Always consult your compliance officer, legal counsel, or the relevant supervisory authority for guidance specific to your institution.