FED Final Rule Applies Netting Protection to Broader Range of Entities
FED finalized a rule that is intended to reduce risk and increase efficiency in the financial system by applying netting protections to a broader range of financial institutions. The final rule amends Regulation EE on Financial Institution Netting to apply netting provisions of the FDIC Improvement Act of 1991 (FDICIA) to certain new entities, including swap dealers. The rule also contains minor clarifications to the existing activities-based test in Regulation EE to clarify how the activities-based test applies following a consolidation of legal entities. The final rule becomes effective 30 days after its publication in the Federal Register.
Sections 401-407 of FDICIA validate netting contracts among financial institutions. Parties to a netting contract agree that they will pay or receive the net, rather than the gross payment due under the netting contract. The FDICIA provides certainty that netting contracts will be enforced, even in the event of the insolvency of one of the parties. Regulation EE currently includes an activities-based test pursuant to which an entity can qualify as a financial institution for purposes of netting provisions of FDICIA if it is a market intermediary and, during the previous 15-month period, it engaged in financial contracts exceeding specified numerical thresholds. Consistent with the FDICIA goals of reducing systemic risk and increasing efficiency in the financial markets, this final rule of FED:
- Expands the definition of financial institution to ensure that certain entities qualify as financial institutions, including swap dealers and security-based swap dealers; major swap participants and major security-based swap participants; nonbank systemically important financial institutions; certain financial market utilities; foreign banks; bridge institutions; qualifying central counterparties; the Bank for International Settlements; foreign central banks; and federal reserve banks.
- Clarifies that, following a consolidation of legal entities, the surviving entity can determine whether its financial contracts exceeded the numerical thresholds in the activities-based test by considering the aggregated financial contracts of the consolidated persons during the previous 15-month period.
Related Links
Effective Date: FR+30 Days
Keywords: Americas, US, Banking, Securities, Security-based Swaps, Regulation EE, Netting, Activities based Test, Netting Contract, Derivatives, FED
Previous Article
EC Amends Regulation on Closely Correlated Currencies Under CRRRelated Articles
BIS Examines Use of Big Data and Machine Learning at Central Banks
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA Finalizes Reporting Standard for Operational Risk Requirements
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB Publishes Guide for Determining Penalties for Regulatory Breaches
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS Sets Out Good Practices to Manage Operational Risks Amid COVID
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR Announces New Data Collection Application for Banks and Insurers
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB Maintains CCyB at 0%, Initiates First Cycle of Regulatory Sandbox
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EIOPA Launches Study on Non-Life Underwriting Risk in Internal Models
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB Publishes Overview of Resolution Tools Available in Banking Union
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting
