FCA published an update to its initial joint statement with the U.S. SEC and CFTC on opportunistic strategies in the credit derivatives markets. These opportunistic strategies include, but are not limited to, "manufactured credit events" or "narrowly tailored credit events." FCA also welcomed the recently published proposed protocol by ISDA that is designed to address certain issues related to narrowly tailored credit events.
The proposed ISDA protocol will allow market participants to amend their legacy credit derivatives transactions to incorporate the Narrowly Tailored Credit Event Supplement to the 2014 ISDA Credit Derivatives Definitions. The protocol contains two amendments to the 2014 ISDA Credit Derivatives Definitions. One relates to the Failure to Pay definition and the other to the Outstanding Principal Balance definition. The ISDA 2019 narrowly tailored credit events protocol is relevant to all market participants that trade over-the-counter non-cleared credit derivatives that incorporate the 2014 ISDA Credit Derivatives Definitions. For firms that solely have cleared trades, adherence to the protocol is not required. The anticipated implementation date of the protocol is January 13, 2020. Central counterparties will also incorporate the supplement into cleared trades on the implementation date. The cut-off date for adherence to this protocol is October 14, 2019.
FCA announced that it welcomes these efforts and expects firms to consider how such opportunistic strategies may impact their businesses and to take appropriate action to mitigate market, reputation, and other risks arising from these types of strategies. With regard to the proposed ISDA protocol, firms should consider how adherence to the proposed ISDA protocol may help them mitigate these risks. Firms should also consider the risks to which they may be exposing themselves by trading with counter-parties who do not adhere to the proposed ISDA protocol. The proposed ISDA protocol will not address many of the concerns identified in the joint statement, such as opportunistic strategies that do not involve narrowly tailored credit events. However, FCA looks forward to further industry efforts to improve the functioning of the credit derivative markets and welcomes continuing engagement with market participants.
On June 24, 2019, the Chairmen of the U.S. SEC and CFTC, along with the Chief Executive of FCA, had released a joint statement on opportunistic strategies in the credit derivatives markets. The joint statement outlined mutual concerns about the pursuit of these strategies and the adverse impact they may have on the integrity, confidence, and reputation of the credit derivatives markets as well as markets more generally.
Keywords: International, Europe, UK, Banking, Securities, Credit Risk, OTC Derivatives, Legacy Swaps, ISDA Protocol, Narrowly Tailored Credit Events, ISDA, FCA
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.
FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).
EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.