CFTC Extends Relief for UK-Based Swap Entities Post-Brexit

The CFTC revised and extended no-action relief for UK-based swap dealers, multilateral trading facilities ("MTFs") and organized trading facilities ("OTFs") to allow for compliance with UK regulations that have replaced the EU regulations following Brexit. 

In the no-action letter, which extended CFTC Staff Letter 22-16 (see previous coverage), the CFTC allowed entities to adhere to UK laws that have incorporated relevant EU regulations, provided certain conditions are met. The CFTC said it will not take enforcement actions against these entities for non-compliance with specific CFTC regulations as long as they comply with equivalent UK regulations.

The relief applies to requirements regarding SEF registration, trade execution and clearing for swap transactions including margin and reporting obligations. Specifically:

• SEF Registration Requirements: UK-based MTFs and OTFs that are similar to those in the EU are exempt from registering as swap execution facilities under CEA Section 5h(a)(1) ("Swap execution facilities") and CFTC Regulation 37.3(a)(1) ("Swaps Not Readily Susceptible to Manipulation") if they meet specified conditions. This relief applies to facilities that are subject to comparable supervision and regulation by UK authorities.
• Trade Execution Requirements: Counterparties subject to the trade execution requirement under CEA Section 2(h)(8) ("Jurisdiction of Commission") are now permitted to execute swaps on UK-based MTFs and OTFs, provided these trades are conducted in compliance with the UK's regulatory framework.
• Clearing Requirements: The relief allows swap transactions executed on UK MTFs and OTFs to be cleared through UK clearing organizations.
• Margin and Reporting Requirements: Swap transactions on UK-based facilities must still adhere to CFTC's reporting requirements under Parts 43 ("Real-Time Public Reporting") and 45 ("Swap Data Recordkeeping and Reporting Requirements") and clearing-related requirements for transactions intended to be cleared, consistent with UK regulations incorporated from EU law.

The CFTC's no-action relief is effective immediately and remains in place until the earlier of either December 31, 2026, or the issuance of a new comparability determination or a CFTC exemptive order covering UK entities.