Prudential Regulators Adopt Swap Margin Amendments
The FDIC adopted a series of amendments to its swap margin rules, including for LIBOR transition, inter-affiliate initial margin, and to extend compliance dates.
In an accompanying memorandum, the FDIC states that the rules are being adopted jointly with other "prudential regulators" (i.e., the OCC, the Fed, the Financial Conduct Authority and the Federal Housing Financial Authority). The other regulators have yet to vote.
The rulemaking consists of two formal actions: (1) a final rule adopting a series of amendments to swap margin rules and (2) an interim final rule adopting a delay in the compliance dates for initial margin requirements.
IBOR Transition. The rule provides relief in order to permit amendments to IBOR-related provisions (and "necessary follow-on amendments") without a swap losing its "legacy" status and becoming subject to margin requirements.
Inter-Affiliate Margin. The final rule adopts an exclusion from initial margin requirements for inter-affiliate transactions, subject to (1) a limitation on the aggregate amount that can be recognized as exempted at 15% of the swap dealer's tier 1 capital; and (2) the swap dealer taking into account the risk posed by the affiliate the swaps entered into with such affiliate.
Compliance Dates. Subject to further relief in the interim final rule that was also adopted, the final rule adds a sixth category of compliance phase in for entities between $8 and $50 billion under the notional counting requirements.
Pre-Threshold Documentation. The final rule adopts a provision that expressly states that initial margin documentation is not required to be put into place prior to the time that the collection and/or posting of collateral is required.
Non-Material Amendments. The final rules adopt an exclusion in order to permit "legacy" transactions to retain that status, notwithstanding amendments made for "logistical or risk management purposes arising from routine industry practices over the life-cycle of the swap."
Interim Final Rule. The interim final rule follows on a recommendation from the Basel Committee on Banking Supervision and IOSCO ("BCBS-IOSCO") (as well as a recent action by the CFTC). As amended by the final rule, initial margin requirements that were scheduled to be phased in on September 1, 2020 (for entities between $50 billion and $750 billion under the notional counting requirements) and September 1, 2021 (for entities between $8 billion and $50 billion), respectively, will be delayed by a year until 2021 and 2022, respectively. The interim final rule is scheduled to be effective 61 days following its publication in the Federal Register, with comments due 60 days following its publication in the Federal Register.
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