January 2, 2020

Treasury Exempts Subsidiaries of Financial Services Company from QFC Recordkeeping Requirements

The Secretary of the Treasury provided a limited exemption from qualified financial contract ("QFC") recordkeeping requirements to two broker-dealer subsidiaries of a financial services company.

The QFC Rules require non-bank financial companies that meet systemic risk thresholds to maintain specified records concerning QFC positions, counterparties, legal documentation and collateral. The purpose of the recordkeeping requirements is to ensure that the FDIC has enough information to decide which QFCs to assign to a third party and which to retain.

The financial services company requested a limited exemption for two of its subsidiaries from the QFC recordkeeping requirements. Treasury granted this request in part, specifying that the exemption only applies to any QFCs with clients that are their respective customers under the Securities Investment Protection Act (or "SIPA"). Treasury declined to provide the requested exemption for guarantees for the benefit of futures commission merchants to which the entities introduce clients. The relief granted by Treasury thus was tailored to transactions that are likely to be assigned in their entirety to a solvent broker-dealer or a bridge financial company in the event of an orderly liquidation proceeding, and for which the FDIC is therefore unlikely to need to exercise discretion on a client-by-client basis. Treasury stated that it does not believe granting this exemption to either of the two subsidiaries would adversely affect financial stability or U.S. economic conditions.

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