Featured Product

    US Agencies Finalize Amendments to Swap Margin Rule

    July 01, 2020

    US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities. The final rule will become effective on August 31, 2020. Simultaneously, the agencies are requesting comment on an interim final rule that extends the compliance date of the initial margin requirements of the swap margin rules to September 01, 2021, for swap entities and counterparties with average annual notional swap portfolios of USD 50 billion to USD 750 billion. The interim final rule also extends the initial margin compliance date to September 01, 2022, for counterparties with average annual notional swap portfolios of USD 8 billion to USD 50 billion. Comments on the interim final rule will be accepted until August 31, 2020 and it will become effective on September 01, 2020.

    The swap margin rule, as adopted in 2015, takes effect under a phased compliance schedule spanning from 2016 through 2020 and the entities covered by the rule continue to hold swaps in their portfolios that were entered into before the effective dates of the rule. Such swaps are grandfathered from the swap margin rule’s requirements until they expire according to their terms. The final rule addresses comments received in response to the agencies’ publication of the interim final rule that would preserve the status of legacy swaps meeting certain criteria if the United Kingdom withdraws from the European Union (Brexit) without a negotiated settlement agreement. In addition, the final rule:

    • Permits swaps entered into prior to an applicable compliance date (legacy swaps) to retain their legacy status in the event that they are amended to replace an interbank offered rate (IBOR) or other discontinued rate
    • Modifies initial margin requirements for non-cleared swaps between affiliates
    • Introduces an additional compliance date for initial margin requirements
    • Clarifies the point in time at which trading documentation must be in place
    • Permits legacy swaps to retain their legacy status in the event that they are amended due to technical amendments, notional reductions, or portfolio compression exercises
    • Makes technical changes to relocate the provision addressing amendments to legacy swaps that are made to comply with the Qualified Financial Contract Rules

    Under the final rule, entities that are part of the same banking organization generally will no longer be required to hold a specific amount of initial margin for uncleared swaps with each other, known as inter-affiliate swaps. Inter-affiliate swaps are typically used for internal risk management purposes by transferring risk to a centralized risk management function within the firm. Inter-affiliate swaps will remain subject to variation margin requirements while initial margin will still be required if a depository institution's total exposure to all affiliates exceeds 15% of its tier 1 capital. The final rule will give firms additional flexibility to allocate collateral internally and support prudent risk management and safety and soundness. To help transition from LIBOR to alternative reference rates, the final rule allows swap entities to amend legacy swaps to replace the reference to LIBOR or other reference rates that are expected to end without triggering margin exchange requirements. The final rule also clarifies that swap entities may conduct risk-reducing portfolio compression or make certain other non-substantive amendments to their legacy swap portfolios without altering their legacy status. 

    Under the swap margin rule, as amended, initial margin requirements will take effect under a phased compliance schedule spanning from 2016 through 2020 and the Agencies have extended the phase-in period to 2021. Due to the COVID-19 pandemic, the Agencies are extending by one year the phases 5 and 6 implementation deadlines for initial margin requirements from September 01, 2020 to September 01, 2021 (for phase 5) and from September 01, 2021 to September 01, 2022 (for phase 6). The Agencies’ objective is to give covered swap entities additional time to meet their initial margin requirements under the rule so as not to hamper any efforts underway to address exigent circumstances caused by the COVID 19 pandemic.

     

    Related Links

    Comment Due Date: August 31, 2020  (Interim Final Rule)

    Effective Date: August 31, 2020 (Final Rule); September 01, 2020 (Interim Final Rule)

    Keywords: Americas, US, Banking, Securities, Swap Margin Rule, Legacy Swaps, Margin Requirements, Initial Margin, Derivatives, Interest Rate Benchmarks, LIBOR, COVID-19, US Agencies

    Featured Experts
    Related Articles
    News

    EBA Finalizes Remuneration Standards for Investment Firms in EU

    EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).

    January 21, 2021 WebPage Regulatory News
    News

    ECA Recommends Actions to Enhance Resolution Planning for Banks

    EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.

    January 20, 2021 WebPage Regulatory News
    News

    BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK

    BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.

    January 20, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules on Identity Verification of Depositor Protection

    PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).

    January 20, 2021 WebPage Regulatory News
    News

    FSB Publishes Work Program for 2021

    FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.

    January 20, 2021 WebPage Regulatory News
    News

    FCA Issues Update on Move to New Data Collection Platform

    FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.

    January 20, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Derivation Rules for Reporting by Banks

    Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.

    January 19, 2021 WebPage Regulatory News
    News

    FED Revises Capital Planning and Stress Testing Requirements for Banks

    FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.

    January 19, 2021 WebPage Regulatory News
    News

    ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020

    ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.

    January 19, 2021 WebPage Regulatory News
    News

    ESAs Publish Reporting Templates for Financial Conglomerates

    ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.

    January 18, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6484