Financial Associations Recommend Changes to FRB Proposal to Implement the Adjustable Interest Rate Act

SIFMA and the Structured Finance Association ("SFA") offered "conceptual" and "granular" comments on the Federal Reserve Board's ("FRB") proposed rule to implement the Adjustable Interest Rate ("LIBOR") Act.

In its comment letter, SIFMA stated that the current proposal addresses contracts outside of its scope, such as contracts that fall back on Prime or non-LIBOR-related rates. SIFMA encouraged the FRB to include clear definitions clarifying when a contract would fall under the scope of the LIBOR Act. SIFMA urged the FRB not to differentiate between covered and non-covered contracts, claiming it would lead to more confusion among market participants while providing minimal benefits. SIFMA also suggested conforming changes to harmonize the rule.

In its comment letter, SFA focused on analyzing the potential impacts of the proposal on the structured finance and securitization markets. Among several recommendations, including the removal of inconsistencies between the LIBOR Act and the proposed rule's use of "covered"/"non-covered" contracts categories, SFA called for more restrictive classifications that would allow for specific provisions to tailor to specific contracts, such as creating a category called "Structured Finance Swaps" that would fall back on the same benchmark replacement rate used in the related securities.