European prudential and markets authorities have pulled back from a hardline enforcement of new derivatives rules with less than a week to go before the standards come into effect, giving small financial institutions more time to prepare for the wide-ranging reforms.

In a terse statement on Thursday, European Supervisory Authorities said they expected local regulators to assess institutions’ ability to comply on a case-by-case basis.

The new standards that come into effect on March 1 cover trading bespoke over-the-counter swaps used by pension funds, asset managers and credit institutions to hedge their risk. They will require new legal documents and without them, could have locked institutions out of the derivatives market. Trade association Isda said just 15 per cent of the 159,000 legal contracts, known as credit support annexes, had been updated.

The late intervention follows a similar decision by the Commodity Futures Trading Commission, which last week delayed enforcement in its jurisdiction to allow the industry more time to prepare. The move by the EU maintains a fragile coalition among global watchdogs over the planned worldwide implementation.

But the watchdogs – the European Banking Authority, European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority – also indicated their displeasure at the late change.

“The timeline for implementation has been known in the EU since 2015, and it is unfortunate that the financial industry has not managed to prepare for the implementation”, they said in a joint statement.

They also pointed out that there had been a nine-month delay in 2015 on the basis of similar arguments from the industry, adding: “That delay was agreed with the clear expectation that the financial industry would be ready to prepare the implementation within two years.”

The EU is hamstrung as a formal delay would require a legislative change, which would take months. Regulators in the region also do not have the power to make European-wide rulings akin to “no action” letters that the CTC is able to issue.

They also warned the changes did not amount to a delay. The regulators also said they expected the problems would be solved in the coming few months.

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