March 19, 2019

US Agencies (FCA, FDIC, FED, FHFA, and OCC) are adopting and inviting comments on an interim final rule that amends the regulations that require swap dealers and security-based swap dealers under the Agencies’ respective jurisdictions to exchange margin with their counterparties for swaps that are not centrally cleared (Swap Margin Rule). Although the interim final rule will be effective on March 19, 2019, the agencies will be accepting comments on the rule by April 18, 2019.

The Swap Margin Rule takes effect under a phased compliance schedule stretching from 2016 through 2020. The dealers covered by the rule continue to hold swaps in their portfolios that were entered into before the effective dates of the rule. These swaps are grandfathered from the Swap Margin Rule’s requirements until they expire according to their terms. There are currently financial services firms located within UK that conduct swap dealing activities subject to the Swap Margin Rule. The UK has provided a formal notice of its intention to withdraw from EU on March 29, 2019. If this transpires without a negotiated agreement between UK and EU, these entities located in the UK may not be authorized to provide full-scope financial services to swap counterparties located in EU.

The US Agencies’ policy objective in developing the interim final rule is to address one aspect of the scenario likely to ensue, whereby entities located in the UK might transfer their existing swap portfolios that face counterparties located in EU over to an affiliate or other related establishment located within EU or U.S. The US Agencies seek to address industry concerns about the status of grandfathered swaps in this scenario, to enable the industry to focus on making preparations for swap transfers. These transfers, if carried out in accordance with the conditions of the interim final rule, will not trigger the application of the Swap Margin Rule to grandfathered swaps that were entered into before the compliance dates of the Swap Margin Rule.

 

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Comment Due Date: April 18, 2019

Effective Date: March 19, 2019

Keywords: Americas, Europe, UK, EU, US, Banking, Securities, Swap Margin Rule, Legacy Swaps, Brexit, US Agencies

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