The Swiss Financial Market Supervisory Authority FINMA published guidance (02/2021) on the derivative trading obligations and the London Inter-bank Offered Rate (LIBOR) replacement. Earlier, in the March 2020 Guidance (01/2020), FINMA had made clear that amendments to the existing derivative contracts solely to address the reference rate reforms would not trigger margin obligations. In this subsequent guidance, FINMA sets out additional clarifications in the course of the changeover to the new reference interest rates at the end of 2021. FINMA states that adjustments to existing derivative contracts solely to address the reference rate reforms are not considered as newly concluded derivative contracts and, therefore, do not trigger either clearing or margin obligations.
However, the following will be considered as adjustments:
- Replacement, extension, or other modification to an existing derivative contract that replaces the operative benchmark rate; replacements can also be made as part of portfolio compression
- Introduction of a fallback clause in relation to the operative benchmark rate for a derivative contract
- Technical adaptations required to implement the aforementioned adjustments
The adjustments may, in particular, modify the maturity or effect a change in the actual notional amount of the existing derivative contract, but they must be necessary for the replacement of the reference rate and abide by the market practices applicable in each case for the new reference rates. This guidance relates solely to the regulatory derivative obligations under the Financial Market Infrastructure Act or FMIA. In providing these clarifications, FINMA is also responding to international developments and contributing to the timely replacement of LIBOR. FINMA appeals to market participants to continue to give top priority to preparations for LIBOR replacement.
Keywords: Europe, Switzerland, Banking, LIBOR, Benchmark Reforms, Financial Market Infrastructures Act, Derivatives, Risk-Free Rates, Fallback Clause, FINMA
Previous ArticleBaFin Provides Operational Relief to Small Institutions in Germany
Next ArticleUS Agencies Propose Changes to CRA Regulations
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
The Financial Accounting Standards Board (FASB) is seeking comments, until November 03, 2022, on the proposed technical and other conforming improvements for the 2023 GAAP Financial Reporting Taxonomy.
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)