FCA Welcomes ISDA Protocol on Narrowly Tailored Credit Events
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.
Related Links
Keywords: International, Europe, UK, Banking, Securities, Credit Risk, OTC Derivatives, Legacy Swaps, ISDA Protocol, Narrowly Tailored Credit Events, ISDA, FCA
Related Articles
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
EC Mandates ESAs to Propose Amendments to SFDR Technical Standards
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
EBA Examines Supervisory Practices, Issues Deposits Reporting Template
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
US Agency Publications Address Basel, Reporting, and CECL Developments
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
SEC Extends Comment Period on Climate Risk Disclosures
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
APRA Reduces Committed Liquidity Facility, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
EBA Updates Standards for 2023 Benchmarking of Internal Approaches
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
EIOPA Responds to Stakeholder Views on Blockchain in Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.
