[Federal Register Volume 84, Number 53 (Tuesday, March 19, 2019)]
[Rules and Regulations]
[Pages 9940-9950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05012]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 45
[Docket No. OCC-2019-0002]
RIN 1557-0061
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
12 CFR Part 237
[Docket No. R-1654]
RIN 7100-AF42
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 349
RIN 3064-AF00
FARM CREDIT ADMINISTRATION
12 CFR Part 624
RIN 3052-AD34
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1221
RIN 2590-AB02
Margin and Capital Requirements for Covered Swap Entities
AGENCY: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC); Farm Credit Administration (FCA);
and the Federal Housing Finance Agency (FHFA).
ACTION: Interim final rule and request for comment.
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SUMMARY: The OCC, Board, FDIC, FCA, and FHFA (each an Agency and,
collectively, the Agencies) are adopting and invite comment on an
interim final rule amending the Agencies' regulations that require swap
dealers and security-based swap dealers under the Agencies' respective
jurisdictions to exchange margin with their counterparties for swaps
that are not centrally cleared (Swap Margin Rule). The Swap Margin Rule
takes effect under a phased compliance schedule stretching from 2016
through 2020, and the dealers covered by the rule continue to hold
swaps in their portfolios that were entered into before the effective
dates of the rule. Those swaps are grandfathered from the Swap Margin
Rule's requirements until they expire according to their terms. There
are currently financial services firms located within the United
Kingdom (U.K.) that conduct swap dealing activities subject to the Swap
Margin Rule. The U.K. has provided formal notice of its intention to
withdraw from the European Union (E.U.) on March 29, 2019. If this
transpires without a negotiated agreement between the U.K. and E.U.,
these entities located in the U.K. may not be authorized to provide
full-scope financial services to swap counterparties located in the
E.U. The Agencies' policy objective in developing the interim final
rule is to address one aspect of the scenario likely to ensue, whereby
entities located in the U.K. might transfer their existing swap
portfolios that face counterparties located in the E.U. over to an
affiliate or other related establishment located within the E.U. or the
United States (U.S.). The Agencies seek to address industry concerns
about the status of grandfathered swaps in this scenario, so the
industry can focus on making preparations for swap transfers. These
transfers, if carried out in accordance with the conditions of the
interim final rule, will not trigger the application of the Swap Margin
Rule to grandfathered swaps that were entered into before the
compliance dates of the Swap Margin Rule.
DATES: The interim final rule is effective March 19, 2019. Comments
should be received on or before April 18, 2019.
ADDRESSES: Interested parties are encouraged to submit written comments
jointly to all of the Agencies. Commenters are encouraged to use the
title ``Margin and Capital Requirements for Covered Swap Entities'' to
facilitate the organization and distribution of comments among the
Agencies.
OCC: You may submit comments to the OCC by any of the methods set
forth below. Commenters are encouraged to submit comments through the
Federal eRulemaking Portal or email, if possible. Please use the title
``Margin and Capital Requirements for Covered Swap Entities'' to
facilitate the organization and distribution of the comments. You may
submit comments by any of the following methods:
Federal eRulemaking Portal--``Regulations.gov'': Go to
www.regulations.gov. Enter ``Docket ID OCC-2019-0002'' in the Search
Box and click ``Search.'' Click on ``Comment Now'' to submit public
comments. Click on the ``Help'' tab on the Regulations.gov home page to
get information on using Regulations.gov, including instructions for
submitting public comments.
Email: [email protected].
Mail: Legislative and Regulatory Activities Division,
Office of the Comptroller of the Currency, 400 7th Street SW, Suite 3E-
218, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Fax: (571) 465-4326.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2019-0002'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the Regulations.gov website without change, including any business or
personal information that you provide such as name and address
information, email addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not include any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically: Go to
www.regulations.gov. Enter ``Docket ID OCC-2019-0002'' in the Search
box and click ``Search.'' Click on ``Open Docket Folder'' on the right
side of the screen. Comments and supporting materials can be viewed and
filtered by clicking on ``View all documents and comments in this
docket'' and then using the filtering tools on the left side of the
screen. Click on the ``Help'' tab on the Regulations.gov home page to
get information on using Regulations.gov. The docket may be viewed
after the close of the comment period in the same manner as during the
comment period.
Viewing Comments Personally: You may personally inspect
comments at the OCC, 400 7th Street SW, Washington,
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DC 20219. For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 649-
6700 or, for persons who are deaf or hearing impaired, TTY, (202) 649-
5597. Upon arrival, visitors will be required to present valid
government-issued photo identification and submit to security screening
in order to inspect comments.
Board: You may submit comments, identified by [Docket No. R-1654
and RIN No. 7100-AF42, by any of the following methods:
Agency website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Email: [email protected]. Include the
docket number and RIN number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Address to Ann E. Misback, Secretary, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue NW, Washington, DC 20551.
All public comments are available from the Board's website at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons or to remove
personally identifiable information at the commenter's request.
Accordingly, comments will not be edited to remove any identifying or
contact information. Public comments may also be viewed electronically
or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006
between 9 a.m. and 5 p.m. on weekdays.
FDIC: You may submit comments, identified by RIN 3064-AF00, by any
of the following methods:
Agency website: https://www.FDIC.gov/regulations/laws/federal.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street, NW, Washington, DC 20429.
Hand Delivered/Courier: The guard station at the rear of
the 550 17th Street Building (located on F Street) on business days
between 7:00 a.m. and 5:00 p.m.
Email: [email protected]. Comments submitted must include
``FDIC'' and ``RIN 3064-AF00--Brexit Amendment: Margin and Capital
Requirements for Covered Swap Entities.'' Comments received will be
posted without change to https://www.fdic.gov/regulations/laws/federal,
including any personal information provided.
FHFA: You may submit your written comments on the interim final
rulemaking, identified by regulatory information number: RIN 2590-AB02,
by any of the following methods:
Agency website: www.fhfa.gov/open-for-comment-or-input.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments. If you submit your
comment to the Federal eRulemaking Portal, please also send it by email
to FHFA at [email protected] to ensure timely receipt by the Agency.
Please include ``RIN 2590-AB02'' in the subject line of the message.
Hand Delivery/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AB02,
Federal Housing Finance Agency, Constitution Center (OGC Eighth Floor),
400 7th St. SW, Washington, DC 20219. Deliver the package to the
Seventh Street entrance Guard Desk, First Floor, on business days
between 9:00 a.m. and 5:00 p.m.
U.S. Mail, United Parcel Service, Federal Express, or
Other Mail Service: The mailing address for comments is: Alfred M.
Pollard, General Counsel, Attention: Comments/RIN 2590-AB02, Federal
Housing Finance Agency, Constitution Center (OGC Eighth Floor), 400 7th
St. SW, Washington, DC 20219.
All comments received by the deadline will be posted for public
inspection without change, including any personal information you
provide, such as your name, address, email address and telephone number
on the FHFA website at http://www.fhfa.gov. Copies of all comments
timely received will be available for public inspection and copying at
the address above on government-business days between the hours of 10
a.m. and 3 p.m. To make an appointment to inspect comments please call
the Office of General Counsel at (202) 649-3804.
FCA: We offer a variety of methods for you to submit your comments.
For accuracy and efficiency reasons, commenters are encouraged to
submit comments by email or through the FCA's website. As facsimiles
(fax) are difficult for us to process and achieve compliance with
section 508 of the Rehabilitation Act, we are no longer accepting
comments submitted by fax. Regardless of the method you use, please do
not submit your comments multiple times via different methods. You may
submit comments by any of the following methods:
Email: Send us an email at [email protected].
FCA website: http://www.fca.gov. Click inside the ``I want
to . . .'' field near the top of the page; select ``comment on a
pending regulation'' from the dropdown menu; and click ``Go.'' This
takes you to an electronic public comment form.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Barry F. Mardock, Deputy Director, Office of
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive,
McLean, VA 22102-5090.
You may review copies of all comments we receive at our office in
McLean, Virginia or on our website at http://www.fca.gov. Once you are
on the website, click inside the ``I want to . . .'' field near the top
of the page; select ``find comments on a pending regulation'' from the
dropdown menu; and click ``Go.'' This will take you to the Comment
Letters page where you can select the regulation for which you would
like to read the public comments. We will show your comments as
submitted, including any supporting data provided, but for technical
reasons we may omit items such as logos and special characters.
Identifying information that you provide, such as phone numbers and
addresses, will be publicly available. However, we will attempt to
remove email addresses to help reduce internet spam.
FOR FURTHER INFORMATION CONTACT:
OCC: Chris McBride, Director for Market Risk, Treasury and Market
Risk Policy, (202) 649-6402, or Allison Hester-Haddad, Counsel, Chief
Counsel's Office, (202) 649-5490, for persons who are deaf or hearing
impaired, TTY (202) 649-5597, Office of the Comptroller of the
Currency, 400 7th Street SW, Washington, DC 20219.
Board: Constance Horsley, Deputy Associate Director, (202) 452-
5239, Peter Clifford, Manager, (202) 785-6057, Lesley Chao, Lead
Financial Institution Policy Analyst, (202) 974-7063, or John Feid,
Principal Economist, (202) 452-2385, Division of Supervision and
Regulation; Jason Shafer, Counsel, (202) 728-5811, or Justyna Bolter,
Attorney, (202) 452-2686, Legal Division, Board of Governors of the
Federal Reserve System, 20th and C Streets NW, Washington, DC 20551.
FDIC: Irina Leonova, Senior Policy Analyst, [email protected],
Capital Markets Branch, Division of Risk Management Supervision, (202)
898-3843; Thomas F. Hearn, Counsel, [email protected], Legal Division,
Federal Deposit Insurance Corporation, 550 17th Street NW, Washington,
DC 20429.
FCA: Jeremy R. Edelstein, Associate Director, Finance & Capital
Market
[[Page 9942]]
Team, Timothy T. Nerdahl, Senior Policy Analyst, Office of Regulatory
Policy, (703) 883-4414, TTY (703) 883-4056, or Richard A. Katz, Senior
Counsel, Office of General Counsel, (703) 883-4020, TTY (703) 883-4056,
Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-
5090.
FHFA: Ron Sugarman, Principal Policy Analyst, Office of Policy
Analysis and Research, (202) 649-3208, [email protected], or James
P. Jordan, Associate General Counsel, Office of General Counsel, (202)
649-3075, [email protected], Federal Housing Finance Agency,
Constitution Center, 400 7th St., SW, Washington, DC 20219. The
telephone number for the Telecommunications Device for the Hearing
Impaired is (800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) \1\ required the Agencies to adopt rules jointly that
establish capital and margin requirements \2\ for swap entities \3\
that are prudentially regulated by one of the Agencies (covered swap
entities).\4\ These capital and margin requirements apply to swaps that
are not cleared by a registered derivatives clearing organization or a
registered clearing agency (non-cleared swaps). Swaps are certain types
of financial derivatives, such as interest rate swaps and commodity
swaps, that the Dodd-Frank Act generally characterized as ``swaps.''
\5\ On November 30, 2015, the Agencies published the Swap Margin Rule
to establish the minimum margin and capital requirements for the non-
cleared swap portfolios of covered swap entities.\6\
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\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\2\ See 7 U.S.C. 6s(e)(3)(A); 15 U.S.C. 78o-10(e)(3)(A).
\3\ See 7 U.S.C. 6s; 15 U.S.C. 78o-10. Sections 731 and 764 of
the Dodd-Frank Act added a new section 4s to the Commodity Exchange
Act of 1936, as amended, and a new section, section 15F, to the
Securities Exchange Act of 1934, as amended, respectively, which
require registration with the Commodity Futures Trading Commission
(CFTC) of swap dealers and major swap participants and the U.S.
Securities and Exchange Commission (SEC) of security-based swap
dealers and major security-based swap participants (each a swap
entity and, collectively, swap entities).
\4\ Section 1a(39) of the Commodity Exchange Act of 1936, as
amended, defines the term ``prudential regulator'' for purposes of
the margin requirements applicable to swap dealers, major swap
participants, security-based swap dealers and major security-based
swap participants. The Board is the prudential regulator for any
swap entity that is (i) a state-chartered bank that is a member of
the Federal Reserve System, (ii) a state-chartered branch or agency
of a foreign bank, (iii) a foreign bank which does not operate an
insured branch, (iv) an organization operating under section 25A of
the Federal Reserve Act of 1913, as amended, or having an agreement
with the Board under section 25 of the Federal Reserve Act, or (v) a
bank holding company, a foreign bank that is treated as a bank
holding company under section 8(a) of the International Banking Act
of 1978, as amended, or a savings and loan holding company (on or
after the transfer date established under section 311 of the Dodd-
Frank Act), or a subsidiary of such a company or foreign bank (other
than a subsidiary for which the OCC or the FDIC is the prudential
regulator or that is required to be registered with the CFTC or SEC
as a swap dealer or major swap participant or a security-based swap
dealer or major security-based swap participant, respectively). The
OCC is the prudential regulator for any swap entity that is (i) a
national bank, (ii) a federally chartered branch or agency of a
foreign bank, or (iii) a Federal savings association. The FDIC is
the prudential regulator for any swap entity that is (i) a State-
chartered bank that is not a member of the Federal Reserve System,
or (ii) a State savings association. The FCA is the prudential
regulator for any swap entity that is an institution chartered under
the Farm Credit Act of 1971, as amended. The FHFA is the prudential
regulator for any swap entity that is a ``regulated entity'' under
the Federal Housing Enterprises Financial Safety and Soundness Act
of 1992, as amended (i.e., the Federal National Mortgage Association
and its affiliates, the Federal Home Loan Mortgage Corporation and
its affiliates, and the Federal Home Loan Banks). See 7 U.S.C.
1a(39).
\5\ A ``swap'' is defined in section 721 of the Dodd-Frank Act
to include, among other things, an interest rate swap, commodity
swap, equity swap, and credit default swap, and a security-based
swap is defined in section 761 of the Dodd-Frank Act to include a
swap based on a single security or loan or on a narrow-based
security index. See 7 U.S.C. 1a(47); 15 U.S.C. 78c(a)(68). For the
remainder of this preamble, the term ``non-cleared swaps'' refers to
non-cleared swaps and non-cleared security-based swaps unless the
context requires otherwise.
\6\ 80 FR 74840 (November 30, 2015). The Swap Margin Rule was
amended to implement a statutory exemption for non-cleared swaps
entered into for hedging by commercial end users and small financial
institutions, see 80 FR 74916 (November 30, 2015), and to address
treatment of qualified financial contracts, see 83 FR 50805 (October
10, 2018).
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The Agencies are issuing this interim final rule in connection with
efforts to assist covered swap entities as they prepare for the event
commonly described as ``Brexit.'' In particular, this interim final
rule is intended to address a covered swap entity's ability to service
its cross-border clients in the event that the U.K. withdraws from the
E.U. without a Withdrawal Agreement.\7\ Briefly stated, the interim
final rule amends the Swap Margin Rule to make it clear that in such an
event, financial entities located in the U.K. may transfer existing
non-cleared swap portfolios over to a sister establishment of the U.K.
financial entity that is located in an E.U. Member State or the U.S.,
without concerns of thereby triggering the application of the Swap
Margin Rule's margin requirements to non-cleared swaps that had been
grandfathered at the financial entity in the U.K.\8\ The Agencies are
also requesting public comment whether additional provisions or
clarifications are needed to achieve the Agencies' objectives and
provide greater clarity.
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\7\ See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/759019/25_November_Agreement_on_the_withdrawal_of_the_United_Kingdom_of_Great_Britain_and_Northern_Ireland_from_the_European_Union_and_the_European_Atomic_Energy_Community.pdf (visited February 5, 2019).
\8\ In this Supplementary Information, the Agencies' references
to an establishment of a financial entity is intended to be flexible
as to whether the relationship of the financial entity to the
business unit in the U.K. or elsewhere is due to an affiliation
between separately-incorporated entities, branching of a single
business entity in different jurisdictions, or some other form of
business establishment through which an arm of the financial entity
may be legally authorized to conduct business in that location.
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In issuing the Swap Margin Rule in 2015, the Agencies established
an effective date of April 1, 2016, with a phased in compliance
schedule for the initial and variation margin requirements.\9\ On or
after March 1, 2017, all covered swap entities were required to comply
with the variation margin requirements for transactions with other swap
entities and financial end user counterparties. By September 1, 2020,
all covered swap entities will be required to comply with the initial
margin requirements for non-cleared swaps with all financial end users
with a material swaps exposure and with all swap entities.
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\9\ The applicable compliance date for a covered swap entity is
based on the average daily aggregate notional amount of non-cleared
swaps, foreign exchange forwards and foreign exchange swaps of the
covered swap entity and its counterparty (accounting for their
respective affiliates) for each business day in March, April and May
of that year. The applicable compliance dates for initial margin
requirements, and the corresponding average daily notional
thresholds, are: September 1, 2016, $3 trillion; September 1, 2017,
$2.25 trillion; September 1, 2018, $1.5 trillion; September 1, 2019,
$0.75 trillion; and September 1, 2020, all swap entities and
counterparties. See Sec. __.1(e) of the Swap Margin Rule.
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The Swap Margin Rule's requirements generally apply only to a non-
cleared swap entered into on or after the applicable compliance
date.\10\ A non-cleared swap entered into prior to an entity's
applicable compliance date is essentially ``grandfathered'' by this
regulatory provision, in that the non-cleared swap is generally not
subject to the margin requirements in the Swap Margin Rule (legacy
swap). However, the Agencies explained in the preamble of the Swap
Margin Rule that a legacy swap that is later amended or novated on or
after the applicable compliance date should be subject to the
requirements of the Swap Margin Rule, in the interests of preventing
evasion of the rule's margin requirements.\11\
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\10\ See Sec. __.1(e) of the Swap Margin Rule.
\11\ 80 FR 74850-51. See also, 83 FR 50805 (October 10, 2018)
(the Agencies added paragraph (7) to Sec. __.1(e), to clarify that
a legacy swap would not lose its legacy status when the covered swap
entity acceded to changes to the non-cleared swap as necessary to
implement the QFC Receivership Stay regulations of the Board, the
FDIC, and the OCC).
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The Swap Margin Rule has a broad territorial reach. It applies to
swap dealers and security-based swap dealers that are registered with
the CFTC or the SEC, respectively, and for which one of the Agencies is
the prudential regulator, including, for example, certain foreign banks
and foreign banking organizations, certain entities established abroad
by U.S. banks, and certain foreign branches of U.S. banks. Typically,
such firms are registered in the foreign jurisdiction in which they are
located with the appropriate financial regulatory authorities, but the
firms may also conduct swap activities with counterparties that have
significant ties to the U.S. (or the dealer itself may be a branch of a
U.S. bank) under circumstances that trigger dealer registration
obligations with the CFTC or SEC. The Agencies included an exemption
from the requirements of the Swap Margin Rule that applies whenever a
foreign covered swap entity engages in a foreign non-cleared swap, but
the rule's margin requirements still apply when the counterparty has
certain connections to the U.S., such as when the counterparty is a
foreign branch or office of an entity organized under U.S. federal or
state law.\12\
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\12\ See Sec. __.9(a)-(c) of the Swap Margin Rule.
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As a result, there are instances in which a covered swap entity
engages in non-cleared swap activities out of establishments in the
U.K. that are subject to the requirements of the Swap Margin Rule. The
same is true in certain instances for a covered swap entity engaging in
those activities out of an establishment in another E.U. Member State.
Financial entities, including covered swap entities, in the U.K.
face uncertainty about the applicable regulatory framework they will
operate within after a U.K. withdrawal from the E.U. In many instances,
these firms made a strategic decision decades ago to use a U.K.
establishment as their base of operations to provide financial services
to customers across the E.U., consistent with the E.U.'s system of
cross-border authorizations to engage in regulated financial activities
(known as ``passporting''). These firms have been mindful that one
consequence of a U.K. exit from the E.U. absent a Withdrawal Agreement
will be an inability of the firms to continue providing investment
services in the E.U. under the current passporting regime. As a result,
they might not be in a position to perform certain operations in
relation to derivatives contracts they presently have with E.U.
clients. In order to address this situation, these firms could transfer
their derivatives to a related establishment in an E.U. Member State,
which in turn would benefit from the passporting regime.
In addition, a covered swap entity that operates an establishment
located outside the U.K. may be affected if the U.K. exits the E.U.
without a Withdrawal Agreement. These covered swap entities may have
entered into non-cleared swaps with financial entities located in the
U.K. These U.K. counterparties of the covered swap entity may need to
relocate certain operations, in order to continue providing financial
services to their own customers in the E.U. Accordingly, a covered swap
entity's counterparties with establishments in the U.K. may seek to
transfer their non-cleared swaps to related establishments of their own
in an E.U. Member State.\13\
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\13\ See Sec. __.9(a)-(c) of the As discussed later in this
SUPPLEMENTARY INFORMATION, the Agencies have designed the interim
final rule to recognize the need for flexibility on the part of
financial entities as they attempt to work through the unanticipated
effects of a U.K. exit from the E.U. absent a Withdrawal Agreement.
For example, while this discussion illustrates an E.U. establishment
of a covered swap entity taking on the swap portfolios of the
entity's related covered swap entity in the U.K., a different
financial entity's current structure might mean the U.K. portfolio
is currently held by the financial entity's CFTC-registered non-bank
subsidiary in the U.K., which is subject to the CFTC's non-cleared
swap margin rule. As a general matter, the CFTC's rule and the
Agencies' Swap Margin Rule impose the same requirements and feature
the same grandfathering. But the portfolio transfer over to the
financial entity's covered swap entity in the E.U. will, as a legal
matter, subject them to the Agencies' swap margin rule once they are
transferred. Or some financial firms that operate a covered swap
entity through an establishment in the U.S. may make strategic
decisions to refrain from opening a new E.U. establishment post-
withdrawal, and thus need to pull their U.K. non-cleared swap
portfolios back to their U.S. covered swap entity.
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In recent months, some financial entities have initiated processes
under which a U.K. court sanctions a bulk transfer of their business,
including derivatives, from the balance sheets of their U.K.
establishments to a different location established by the dealer in
another E.U. Member State.\14\ For many months before that, industry
stakeholders urged E.U. regulators to provide certainty that these
kinds of portfolio transfers of swaps, entered into before the E.U.'s
swap margin rule, will not become subject to E.U. swap margin rules by
virtue of the legal changes associated with novations or other legal
transfer methods. The European Supervisory Authorities (ESAs) \15\
published a final report in November to make a limited exemption in the
Commission Delegated Regulation under the European Market
Infrastructure Regulation (EMIR) for bilateral margining requirements.
The exemption would facilitate novations of these non-cleared swaps by
ensuring that the regulatory characteristics of the original contracts
are preserved.\16\
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\14\ See, e.g., Barclays Bank plc Part VII Business transfer to
Barclays Bank Ireland plc (2019) EWHC 129 (Ch), at http://www.bailii.org/ew/cases/EWHC/Ch/2019/129.pdf (visited January 29,
2019); ``Two Banks Begin Moving Swaps out of London, Pre-Brexit,''
Risk.net (November 30, 2018), at https://www.risk.net/derivatives/6168671/banks-begin-moving-swaps-out-of-london-pre-brexit (visited
January 25, 2019); ``UBS Wins Approval for [euro]32bn Brexit Swaps
Transfer,'' Risk.net (February 6, 2019), at https://www.risk.net/derivatives/6367306/ubs-wins-approval-for-eu32bn-brexit-swaps-transfer.
\15\ The three ESAs are the European Banking Authority (EBA),
the European Securities and Markets Authority (ESMA) and the
European Insurance and Occupational Pensions Authority (EIOPA).
\16\ ESAs Propose to Amend Bilateral Margin Requirements to
Assist Brexit Preparations for OTC Derivative Contracts (November
29, 2018), at https://www.esma.europa.eu/press-news/esma-news/esas-propose-amend-bilateral-margin-requirements-assist-brexit-preparations-otc (visited January 25, 2019).
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The scheduled date of the U.K. withdrawal is March 29, 2019. The
Agencies believe it is appropriate to provide clarity, in order to
facilitate the work of covered swap entities and their counterparties
to transfer non-cleared swaps in response to a U.K. exit from the E.U.
absent a Withdrawal Agreement, without thereby converting their legacy
swaps into covered swaps subject to the Swap Margin Rule. The
conditions of eligibility for the transfers are described in the next
section of this SUPPLEMENTARY INFORMATION.
II. Description of the Interim Final Rule
As discussed above, legacy swaps are generally grandfathered from
the Swap Margin Rule's requirements. More specifically, Sec. __.1(e)
states that covered swap entities shall comply with the Swap Margin
Rule's minimum margin requirements for non-cleared swaps entered into
on or after the compliance date that the rule establishes for separate
classes of counterparties, depending on the size of their swaps
portfolios.\17\ However, in the preamble
[[Page 9944]]
to the Swap Margin Rule, in response to comments, the Agencies declined
to include regulatory language that would extend legacy swap treatment
to a swap if it is subsequently novated or amended after the applicable
compliance date, expressing concerns about evasion and
implementation.\18\
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\17\ A legacy swap may still be subjected to margin requirements
if the covered swap entity places the swap into a netting set that
includes other non-cleared swaps that are entered into after the
compliance date applicable to the covered swap entity. Swap Margin
Rule Sec. .__5(a)(3). Covered swap entities use netting sets to
calculate their margin requirements for multiple swaps with a single
counterparty on a portfolio basis, offsetting asset and liability
exposures in the portfolio to one net exposure, subject to
conditions contained in the Swap Margin Rule, including an
enforceable legal netting agreement with the counterparty. See Sec.
__.5(a).
\18\ 80 FR 74850-51. The Agencies articulated concerns about the
potential evasion of the Swap Margin Rule if legacy swaps could be
materially amended and not become subject to the requirements of the
Swap Margin Rule, as well as the Agencies' concerns about the
difficulty of administrating a more complex regulatory approach that
attempted to draw distinctions among the materiality of, or the
intended purpose of, amendments to legacy swaps.
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In the interim final rule, the Agencies are amending Sec. __.1 to
add an additional provision, paragraph Sec. __.1(h). This new
provision is designed to preserve the status quo for legacy swaps for a
covered swap entity in the event of a ``no-deal'' U.K. withdrawal,
regardless of whether that covered swap entity is the swap counterparty
directly involved in the transfer out of the U.K. or the counterparty
on the other side of the swap.
A covered swap entity may, for example, use its establishment in
the E.U. to take on non-cleared swap portfolios from its swap dealing
affiliate in the U.K. In a different case, the covered swap entity's
establishments in the E.U. and the U.K. may both be branches of the
same swap dealing bank. Alternatively, there may be yet a different
relationship due to the structure of the specific financial entity
involved.
On the other hand, the covered swap entity may not move its
operations in any way, but it may have existing portfolios of non-
cleared swaps facing counterparties who are themselves relocating out
of the U.K., to an affiliate, or a branch, or some other type of
establishment outside of the U.K.
To be effective, the Agencies believe this interim final rule must
cover the different scenarios that would trigger the need for a covered
swap entity to participate in amending a non-cleared swap in order to
``relocate'' the swap, either on account of its own need to move non-
cleared swaps out of the U.K., or its counterparty's need to do so.\19\
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\19\ The Agencies note that, regardless whether the covered swap
entity is driving the swap relocation, or the covered swap entity's
counterparty is driving the move, the covered swap entity will need
to participate in whatever amendments or other legal steps are used
to reflect the transfer of a bilateral non-cleared swap contract.
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Accordingly, the text of the interim final rule is intended to be
flexible as to the nature of the financial entity's establishment--
covered swap entity or counterparty--maintained in the U.K., be it an
entity organized under U.K. law, or a branch or other authorized office
maintained in the U.K. by a firm that is legally organized elsewhere.
This flexibility extends to the establishment to which the non-cleared
swaps are transferred, so long as the transferring establishment in the
U.K. is related to the receiving establishment outside the U.K.\20\ The
interim final rule is also intended to be flexible as to the manner in
which that establishment in the U.K held its non-cleared swaps, either
because the financial entity booked the swap at the U.K. establishment,
or as determined by other business or account criteria the financial
entity consistently employs in assigning a particular non-cleared swap
to a particular establishment. \21\
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\20\ See Sec. __.1(h)(2)(ii), referring to non-cleared swaps an
entity in the U.K. arranges to amend in order to transfer it to one
of its affiliates, or a branch or other authorized form of
establishment, located in an E.U. Member State.
\21\ See Sec. __.1(h)(2)(i), referring to non-cleared swap
originally entered into before the relevant compliance date under
the Swap Margin Rule, when one party to the swap booked it at, or
otherwise held it at, an entity (including a branch or other
authorized form of establishment) located in the U.K.
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To benefit from the treatment of this new legacy swap provision,
the financial entity located in the U.K. must arrange to make the
amendments to the non-cleared swap solely for the purpose of
transferring the non-cleared swap to an affiliate or other related
establishment that is located in an E.U. Member State (once the U.K.
has withdrawn from the E.U., as further discussed below). This purpose
test also contains a requirement that the transfer be made in
connection with the U.K. entity's planning for the possibility that the
U.K. might exit the E.U. without a Withdrawal Agreement, or the U.K.
entity's response to such event.\22\
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\22\ See Sec. __.1(h)(2)(ii), requiring the amendments to be
for the sole purpose of transferring the non-cleared it to one of
its affiliates, or a branch or other authorized form of
establishment, located in an E.U. Member State, in connection with
the entity's planning for or response to U.K. withdrawal.
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The interim final rule is intended to be flexible as to whether the
relationship aspect of the purpose test is due to affiliation between
separately-incorporated entities, branching of a single business entity
in different jurisdictions, or some other form of business
establishment through which an arm of the financial entity may be
legally authorized to conduct business in the E.U. Member State. The
Agencies have similarly included transfers to an affiliate, or branch
or other authorized form of establishment, that the financial entity
maintains in the U.S. to provide additional flexibility for financial
entities with U.S. headquarters or other U.S. establishments.
For compliance purposes, the interim final rule makes one
distinction between a transfer initiated by the financial entity
standing as the covered swap entity at the completion of the
transaction, versus a transfer initiated by the covered swap entity's
counterparty. For the latter, the counterparty must make a
representation to the covered swap entity that the counterparty carried
out the swap in accordance with both elements of the purpose test.
The interim final rule is designed to permit such amendments as
financial entities find necessary to relocate non-cleared swap
portfolios out of the U.K. under the purpose test. These changes may be
carried out using any of the methods typically employed for effecting
non-cleared swap transfers, including industry protocols, contractual
amendments, or contractual tear-up and replacement. To the extent they
would otherwise trigger margin requirements, judicially-supervised
changes that result in a non-cleared swap being booked at or held by a
related establishment in the E.U., including by means of the court-
sanctioned process available under Part VII of the U.K.'s Financial
Services and Markets Act of 2000, are similarly within the scope of the
interim final rule.
However, the Agencies do not believe the relief being provided for
relocation purposes should be expansively applied to encompass economic
changes to a legacy swap. Accordingly, the rule text makes legacy swap
status unavailable if the amendments to a non-cleared swap modify the
payment amount calculation methods, the maturity date, or the notional
amount of the non-cleared swap. Thus, for example, if the day count
convention of a non-cleared swap changes as a consequence of re-
locating a non-cleared interest rate swap several time zones away from
the U.K., the parties to the swap would not be changing the payment
amount calculation methods. On the other hand, a change to one of the
payment amount calculation economic factors (e.g., an interest rate
margin or base rate) would be a change outside the scope of the interim
final rule and would trigger application of the margin requirements.
The Agencies also seek to establish a reasonable period of time for
the necessary work to achieve the transfers to be performed. The
interim final rule permits transfers for a period of one year after a
U.K. withdrawal. The 1-year
[[Page 9945]]
period commences at the point at which the law of the European Union
ceases to apply in the U.K. pursuant to Article 50(3) of the Treaty on
European Union, without conclusion of a Withdrawal Agreement between
the U.K. and E.U. pursuant to Article 50(2).\23\ If the present
withdrawal date is extended, and withdrawal later occurs at the end of
that extension without a Withdrawal Agreement, the interim final rule's
1-year period would begin at that time. The Agencies contemplate that,
if the withdrawal date is extended, financial entities may negotiate
and document their desired transfers during the intervening period,
under terms that delay consummation of any transfer until withdrawal
takes place without an agreement and the interim final rule's
substantive provisions are thereby triggered.
---------------------------------------------------------------------------
\23\ For an overview of the process by which an E.U. Member
State may withdraw from the E.U., see the European Parliament
Briefing, Article 50 TEU: Withdrawal of a Member State from the E.U.
(February 2016), available at http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/577971/EPRS_BRI(2016)577971_EN.pdf (visited January
25th, 2019).
---------------------------------------------------------------------------
The Agencies believe that a provision enabling entities to transfer
non-cleared swaps while retaining legacy status would be most effective
if the timeframe allowed takes into account the timeframe under
corresponding E.U. legislation. As noted above, the ESAs have submitted
novation amendments for their margin rules in proposed form to the
European Commission, but the relief that would be afforded thereby has
not yet been finalized under the E.U. process.\24\ The ESAs' draft
Regulatory Technical Standards provides relief for one year after the
amendments are finalized by official publication, after parliamentary
approval. If the E.U. amendments are not yet finalized at the time of a
U.K. withdrawal, affected financial entities may delay consummation of
their non-cleared swap transfers until the ESAs' proposed amendments
apply. The Agencies anticipate some transferring financial entities
will operate under both sets of regulations and will accordingly seek
to coordinate their transfer operations for compliance purposes under
both sets of amendments. To facilitate this, the Agencies' interim
final rule has a ``tacking'' provision that will extend the Agencies'
1-year period by the amount of any additional time available under the
ESAs' 1-year period.
---------------------------------------------------------------------------
\24\ See Final Report on EMIR RTS on the novation of bilateral
contracts not subject to bilateral margins, ESAs 2018 25 (November
27, 2018), at https://eiopa.europa.eu/Publications/Reports/ESAs%202018%2025%20-%20Final%20Report%20-%20Bilateral%20margining%20%28novation%29.pdf (visited January 25,
2019).
---------------------------------------------------------------------------
The interim final rule differs from the ESAs' proposed amendments
to the extent that the legacy status protection afforded under the
ESAs' approach is unavailable to derivatives entered into after the
official, final publication of the amendments (which establishes the
legal effective date of the rule). The Agencies have provided legacy
status protection to any swap entered into before the applicable
compliance date--of which there are two still upcoming, on September 1,
2019 and September 1, 2020--with no cutoff for swaps executed before
those dates but after issuance of this interim final rule. The Agencies
believe the marginal volume of additional legacy swaps that will be
protected by the Agencies' approach is not likely to be substantial,
and the additional time granted could facilitate a more organized
transition for the affected counterparties.
III. Request for Comments
The Agencies request comment on all aspects of the interim final
rule as well as on the following specific questions.
(1) The interim final rule permits amendments to non-cleared swaps
in order to transfer swaps in response to the scenario in which the
U.K. exits the E.U. in the absence of a Withdrawal Agreement. As
explained above, the Agencies seek to encompass changes through a
variety of methods, including industry protocols, contractual
amendments, transfers permitted by judicial proceedings, and
contractual tear-up and replacement. What, if any, additional
clarification in the rule as to types of permissible amendments should
the Agencies provide? What specifically should be added or clarified,
and why is it necessary in order to achieve the Agencies' policy
objectives in the context of a U.K. withdrawal from the E.U.?
(2) The relief provided by the interim final rule applies to the
transfer of swaps from a financial entity's establishment in the U.K.
to an establishment in the E.U. or the U.S. What, if any, other types
of relief should be considered for swaps that are transferred from the
E.U. to the U.K.? Please provide a description of the circumstances
creating this need, including the frequency of its occurrence.
(3) The transfers that are accommodated by the interim final rule
are available only between affiliates or other related establishments.
The Agencies do not intend the relief provided by the interim final
rule to provide an opportunity for financial entities to seek out a new
dealer relationship and retain legacy swap treatment. However, the
Agencies request comment on whether there may be financial entities
that are unable to arrange a transfer of legacy swaps unless the
transfer is to an unrelated entity outside the U.K. and are thus not
covered under the terms of the interim final rule. Commenters should
provide descriptions of the factual circumstances, including the
frequency of its occurrence.
IV. Administrative Law Matters
A. Administrative Procedure Act
The Agencies are issuing the interim final rule without prior
notice and the opportunity for public comment and without the 30-day
delayed effective date ordinarily prescribed by the Administrative
Procedure Act (APA).\25\ Pursuant to section 553(b)(B) of the APA,
general notice and the opportunity for public comment are not required
with respect to a rulemaking when an ``agency for good cause finds (and
incorporates the finding and a brief statement of reasons therefor in
the rules issued) that notice and public procedure thereon are
impracticable, unnecessary, or contrary to the public interest.'' \26\
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\25\ 5 U.S.C. 553.
\26\ 5 U.S.C. 553(b)(B).
---------------------------------------------------------------------------
As discussed above, the interim final rule addresses a potential
impact of the scenario in which the U.K. exits from the E.U. in the
absence of a Withdrawal Agreement. The U.K.'s exit is expected to occur
on March 29, 2019. The interim final rule facilitates the ability of a
financial entity with non-cleared swaps located in the U.K. to relocate
existing swap portfolios over to affiliates or other related entities
located within the E.U. or U.S., without the ``grandfathered'' legacy
swaps in the portfolios becoming subject to the Swap Margin Rule. As
such, the interim final rule benefits covered swap entities subject to
the Swap Margin Rule by removing an impediment to the transfers and
maintaining the status quo of a legacy swap. The interim final rule
does not impose any requirements or mandatory burden on any covered
swap entity.
The Agencies believe that the public interest is best served by
making the interim final rule effective as soon as possible as a result
of the expected timing of events in the U.K. The Agencies believe that
issuing the interim final rule will provide the certainty necessary to
facilitate the industry's efforts to begin arranging their transfers
immediately upon the
[[Page 9946]]
U.K.'s withdrawal. In addition, the Agencies believe that providing a
notice and comment period prior to issuance of the interim final rule
is impracticable given the need for relief to begin on March 29, 2019.
For these reasons, the Agencies find there is good cause consistent
with the public interest to issue the interim final rule without
advance notice and comment.\27\
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\27\ 5 U.S.C. 553(b)(B); 553(d)(3).
---------------------------------------------------------------------------
The APA also requires a 30-day delayed effective date, except for
(1) substantive rules which grant or recognize an exemption or relieve
a restriction; (2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good cause.\28\ The
Agencies find good cause to publish the interim final rule with an
immediate effective date for the same reasons set forth above under the
discussion of section 553(b)(B) of the APA.
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\28\ 5 U.S.C. 553(d).
---------------------------------------------------------------------------
While the Agencies believe there is good cause to issue the interim
final rule without advance notice and comment and with an immediate
effective date, the Agencies are requesting comment on all aspects of
the interim final rule.
B. Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, sec.
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the OCC, Board and
FDIC to use plain language in all proposed and final rules published
after January 1, 2000. The OCC, Board and FDIC invite your comments on
how to make this proposal easier to understand. For example:
Have we organized the material to suit your needs? If not,
how could this material be better organized?
Are the requirements in the regulation clearly stated? If
not, how could the regulation be more clearly stated?
Does the regulation contain language or jargon that is not
clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes to the format would make the regulation
easier to understand?
What else could we do to make the regulation easier to
understand?
C. Paperwork Reduction Act Analysis
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (PRA), 44 U.S.C. 3501-3521, the Agencies may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless it displays a currently-valid Office of Management
and Budget (OMB) control number. The OCC, Board, and FDIC have reviewed
this interim final rule and determined that it introduces a new
collection of information pursuant to the PRA and the OCC and FDIC have
submitted it to OMB for review under section 3507(d) of the PRA (44
U.S.C. 3507(d)) and section 1320.11 of the OMB's implementing
regulations (5 CFR 1320). The Board has reviewed the information
collection under its delegated authority. The OMB Control Numbers are:
1557-0251 (OCC), 3064-0204 (FDIC), and 7100-0364 (Board).\29\ The FCA
has determined the rule will not introduce any collection of
information for Farm Credit System institutions because Farm Credit
System institutions are Federally chartered instrumentalities of the
United States and instrumentalities of the United States are
specifically excepted from the definition of ``collection of
information'' contained in 44 U.S.C. 3502(3). The FHFA has determined
that the interim final rule does not contain any collection of
information for which the agency must obtain clearance under the PRA.
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\29\ The agencies may be required to request new control
numbers.
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Section __.1(h) specifies that transfers of legacy swaps initiated
by a covered swap entity's counterparty require a representation to the
covered swap entity that the counterparty carried out the swap in
accordance with both elements of the purpose test \30\ in order to
remain outside the scope of the rule. The agencies estimate that the
burden for this representation is de minimis. Therefore, they are
estimating minimal burden for this requirement.
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\30\ The purpose test requires that the financial entity located
in the U.K. arrange to make the amendments to the non-cleared swap
solely for the purpose of transferring the non-cleared swap to an
affiliate or other related establishment that is located in an E.U.
Member State. This purpose test also contains a requirement that the
transfer be made in connection with the U.K. entity's planning for
the possibility that the U.K. might exit the E.U. without a
Withdrawal Agreement, or the U.K. entity's response to such an
event.
---------------------------------------------------------------------------
OCC:
Estimated Number of Respondents: 10.
Estimated Burden per Response: 1 hour.
Total Estimated Burden: 10 hour.
FRB:
Estimated Number of Respondents: 41.
Estimated Burden per Response: 1 hour.
Total Estimated Burden: 41 hours.
FDIC:
Estimated Number of Respondents: 1.\31\
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\31\ The FDIC's estimates zero entities, but is estimating one
here as a placeholder.
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Estimated Burden per Response: 1 hour.
Total Estimated Burden: 1 hour.
Comments are invited on:
a. Whether the collections of information are necessary for the
proper performance of the agencies' functions, including whether the
information has practical utility;
b. The accuracy or the estimate of the burden of the information
collections, including the validity of the methodology and assumptions
used;
c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
d. Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
e. Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
All comments will become a matter of public record. Comments on
aspects of this notice that may affect reporting, recordkeeping, or
disclosure requirements and burden estimates should be sent to the
addresses listed in the ADDRESSES section of this document. A copy of
the comments may also be submitted to the OMB desk officer by mail to
U.S. Office of Management and Budget, 725 17th Street NW, #10235,
Washington, DC 20503; facsimile to (202) 395-6974; or email to
[email protected], Attention, Federal Banking Agency Desk
Officer.
D. Regulatory Flexibility Act Analysis
OCC: The Regulatory Flexibility Act (RFA) does not apply to a
rulemaking when a general notice of proposed rulemaking is not
required. 5 U.S.C. 603 and 604. As noted previously, the Agencies have
determined for good cause that it is impracticable and contrary to the
public interest to publish a general notice of proposed rulemaking for
this joint final rule. Accordingly, the RFA's requirements relating to
an initial and final regulatory flexibility analysis do not apply.
Board: The Regulatory Flexibility Act (RFA) requires an agency to
consider whether the rules it proposes will have a significant economic
impact on a substantial number of small entities. The RFA applies only
to rules for which an agency publishes a general notice of
[[Page 9947]]
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed
previously, consistent with section 553(b)(B) of the APA, the Board has
determined for good cause that general notice and opportunity for
public comment is impracticable and contrary to the public's interest,
and therefore the Board is not issuing a notice of proposed rulemaking.
Accordingly, the Board has concluded that the RFA's requirements
relating to initial and final regulatory flexibility analysis do not
apply. Further, the Board notes that no small entities, as defined by
the Small Business Administration's rules implementing the RFA, will be
affected by the interim final rule.
FDIC: The Regulatory Flexibility Act (RFA) \32\ requires an agency
to consider whether the rules it proposes will have a significant
economic impact on a substantial number of small entities.\33\ The RFA
applies only to rules for which an agency publishes a general notice of
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed in the
joint interim final rule, consistent with section 553(b)(B) of the APA,
the FDIC determined for good cause that general notice and opportunity
for public comment was unnecessary, and therefore the FDIC did not
issue a notice of proposed rulemaking. Accordingly, the FDIC has
concluded that the RFA's requirements relating to initial and final
regulatory flexibility analysis do not apply. Further, the FDIC
supervises 3,533 depository institutions,\34\ of which 2,726 are
defined as small banking entities by the terms of the RFA.\35\ This
interim final rule directly applies to covered swap entities (which
includes persons registered with the CFTC as swap dealers or major swap
participants pursuant to the Commodity Exchange Act of 1936 and persons
registered with the SEC as security-based swap dealers and major
security-based swap participants under the Securities Exchange Act of
1934) that are subject to the requirements of the Swap Margin Rule. The
FDIC has identified 104 swap dealers that, as of February 12, 2019,
have registered as swap entities.\36\ None of these institutions are
supervised by the FDIC. Therefore, no small FDIC-supervised entities,
as defined by the Small Business Administration's rules implementing
the RFA, will be affected by the interim final rule.
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\32\ 5 U.S.C. 601 et seq.
\33\ The SBA defines a small banking organization as having $550
million or less in assets, where ``a financial institution's assets
are determined by averaging the assets reported on its four
quarterly financial statements for the preceding year.'' 13 CFR
121.201 n.8 (2018). ``SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue and all of its
domestic and foreign affiliates. . . .'' 13 CFR 121.103(a)(6)
(2018). Following these regulations, the FDIC uses a covered
entity's affiliated and acquired assets, averaged over the preceding
four quarters, to determine whether the covered entity is ``small''
for the purposes of RFA.
\34\ FDIC-supervised institutions are set forth in 12 U.S.C.
1813(q)(2).
\35\ FDIC Call Report, September 30, 2018.
\36\ In identifying the 104 entities referred to in the text,
the Agencies used the list of swap dealers set forth, on February
12, 2019 (providing data as of February 12, 2019) at https://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer.html.
While the CFTC has adopted a registration requirement for entities
that meet the definition of major swap participants, as of February
12, 2019, the CFTC's website does not indicate that any entities are
currently registered as major swap participants. Major swap
participants are required to apply for registration through a filing
with the National Futures Association. Accordingly, the Agencies
reviewed the National Futures Association https://www.nfa.futures.org/members/sd/index.html to determine whether there
were registered major swap participants. As of February 11, 2019,
there were no Major Swaps Participants listed on this link. The SEC
has not yet imposed a registration requirement for security-based
swap dealers or major security-based swap participants.
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FCA: Pursuant to section 605(b) of the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.), the FCA hereby certifies that the interim final
rule will not have a significant economic impact on a substantial
number of small entities. Each of the banks in the Farm Credit System,
considered together with its affiliated associations, has assets and
annual income more than the amounts that would qualify them as small
entities. Nor does the Federal Agricultural Mortgage Corporation meet
the definition of a ``small entity.'' Therefore, Farm Credit System
institutions are not ``small entities'' as defined in the Regulatory
Flexibility Act.
FHFA: The RFA applies only to rules for which an agency is required
to publish a general notice of proposed rulemaking pursuant to 5 U.S.C.
553(b). As discussed in the joint interim final rule, consistent with
section 553(b)(B) of the APA, FHFA determined for good cause that
general notice and opportunity for public comment was impracticable and
contrary to the public interest, and therefore FHFA did not issue a
notice of proposed rulemaking. Accordingly, FHFA has concluded that the
RFA's requirements relating to initial and final regulatory flexibility
analysis do not apply. This interim final rule directly applies to
covered swap entities (which includes persons registered with the CFTC
as swap dealers or major swap participants pursuant to the Commodity
Exchange Act of 1936 and persons registered with the SEC as security-
based swap dealers and major security-based swap participants under the
Securities Exchange Act of 1934) that are subject to the requirements
of the Swap Margin Rule. No FHFA-regulated entity is a covered swap
entity, nor is any FHFA-regulated entity a small entity, as defined by
the Small Business Administration's rules implementing the RFA.
Therefore, no small FHFA-regulated entity will be affected by the
interim final rule.
E. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded
Mandates Act), 2 U.S.C. 1532, requires the OCC to prepare a budgetary
impact statement before promulgating any final rule for which a general
notice of proposed rulemaking was published. As discussed above, the
OCC has determined for good cause that the publication of a general
notice of proposed rulemaking is impracticable and contrary to the
public interest. Accordingly, this joint final rule is not subject to
section 202 of the Unfunded Mandates Act.
F. Riegle Community Development and Regulatory Improvement Act of 1994
The Riegle Community Development and Regulatory Improvement Act of
1994 (RCDRIA) requires that each Federal banking agency, in determining
the effective date and administrative compliance requirements for new
regulations that impose additional reporting, disclosure, or other
requirements on insured depository institutions, consider, consistent
with principles of safety and soundness and the public interest, any
administrative burdens that such regulations would place on depository
institutions, including small depository institutions, and customers of
depository institutions, as well as the benefits of such regulations.
In addition, new regulations and amendments to regulations that impose
additional reporting, disclosures, or other new requirements on insured
depository institutions generally must take effect on the first day of
a calendar quarter that begins on or after the date on which the
regulations are published in final form.\37\ Each Federal banking
agency has determined that the final rule would not impose additional
reporting, disclosure, or other requirements; therefore the
requirements of the RCDRIA do not apply.
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\37\ 12 U.S.C. 4802.
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[[Page 9948]]
List of Subjects
12 CFR Part 45
Administrative practice and procedure, Capital, Margin
requirements, National banks, Federal savings associations, Reporting
and recordkeeping requirements, Risk.
12 CFR Part 237
Administrative practice and procedure, Banks, Banking, Foreign
banking, Holding companies, Reporting and recordkeeping requirements,
Swaps.
12 CFR Part 349
Administrative practice and procedure, Banks, Banking, Holding
companies, Capital, Margin Requirements, Reporting and recordkeeping
requirements, Savings associations, Risk, Swaps.
12 CFR Part 624
Accounting, Agriculture, Banks, Banking, Capital, Cooperatives,
Credit, Margin requirements, Reporting and recordkeeping requirements,
Risk, Rural areas, Swaps.
12 CFR Part 1221
Government-sponsored enterprises, Mortgages, Securities.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the common preamble and under the
authority of 12 U.S.C. 93a and 5412(b)(2)(B), the Office of the
Comptroller of the Currency amends chapter I of Title 12, Code of
Federal Regulations, as follows:
PART 45--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES
0
1. The authority citation for part 45 continues to read as follows:
Authority: 7 U.S.C. 6s(e), 12 U.S.C. 1 et seq., 12 U.S.C. 93a,
161, 481, 1818, 3907, 3909, 5412(b)(2)(B), and 15 U.S.C. 78o-10(e).
0
2. Section 45.1 is amended by adding paragraph (h) to read as follows:
Sec. 45.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(h) Legacy swaps. Covered swaps entities are required to comply
with the requirements of this part for non-cleared swaps and non-
cleared security-based swaps entered into on or after the relevant
compliance dates for variation margin and for initial margin
established in paragraph (e) of this section. Any non-cleared swap or
non-cleared security-based swap entered into before such relevant date
shall remain outside the scope of this part if changes are made to it
as follows:
(1) [Reserved]
(2) The non-cleared swap or non-cleared security based swap was
amended under the following conditions:
(i) The swap was originally entered into before the relevant
compliance date established in paragraph (e) of this section and one
party to the swap booked it at, or otherwise held it at, an entity
(including a branch or other authorized form of establishment) located
in the United Kingdom;
(ii) The entity in the United Kingdom subsequently arranged to
amend the swap, solely for the purpose of transferring it to an
affiliate, or a branch or other authorized form of establishment,
located in any European Union member state or the United States, in
connection with the entity's planning for or response to the event
described in paragraph (h)(2)(iii) of this section, and the transferee
is:
(A) A covered swap entity, or
(B) A covered swap entity's counterparty to the swap, and the
counterparty represents to the covered swap entity that the
counterparty performed the transfer in compliance with the requirements
of paragraphs (h)(2)(i) and (ii) of this section;
(iii) The law of the European Union ceases to apply to the United
Kingdom pursuant to Article 50(3) of the Treaty on European Union,
without conclusion of a Withdrawal Agreement between the United Kingdom
and the European Union pursuant to Article 50(2);
(iv) The amendments do not modify any of the following: The payment
amount calculation methods, the maturity date, or the notional amount
of the swap;
(v) The amendments cause the transfer to take effect on or after
the date of the event described in paragraph (h)(2)(iii) of this
section transpires; and
(iv) The amendments cause the transfer to take effect by the later
of:
(A) The date that is one year after the date of the event described
in paragraph (h)(2)(iii); or
(B) Such other date permitted by transitional provisions under
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as
amended.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, the Board of Governors
of the Federal Reserve System amends 12 CFR part 237 to read as
follows:
PART 237--SWAPS MARGIN AND SWAPS PUSH-OUT
0
3. The authority citation for part 237 continues to read as follows:
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 15 U.S.C. 8305,
12 U.S.C. 221 et seq., 12 U.S.C. 343-350, 12 U.S.C. 1818, 12 U.S.C.
1841 et seq., 12 U.S.C. 3101 et seq., and 12 U.S.C. 1461 et seq.
Subpart A--Margin and Capital Requirements for Covered Swap
Entities (Regulation KK)
0
4. Section 237.1 is amended by adding paragraph (h) to read as follows:
Sec. 237.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(h) Legacy swaps. Covered swaps entities are required to comply
with the requirements of this subpart for non-cleared swaps and non-
cleared security-based swaps entered into on or after the relevant
compliance dates for variation margin and for initial margin
established in paragraph (e) of this section. Any non-cleared swap or
non-cleared security-based swap entered into before such relevant date
shall remain outside the scope of this subpart if changes are made to
it as follows:
(1) [Reserved]
(2) The non-cleared swap or non-cleared security based swap was
amended under the following conditions:
(i) The swap was originally entered into before the relevant
compliance date established in paragraph (e) of this section and one
party to the swap booked it at, or otherwise held it at, an entity
(including a branch or other authorized form of establishment) located
in the United Kingdom;
(ii) The entity in the United Kingdom subsequently arranged to
amend the swap, solely for the purpose of transferring it to an
affiliate, or a branch or other authorized form of establishment,
located in any European Union member state or the United States, in
connection with the entity's planning for or response to the event
described in paragraph (h)(2)(iii) of this section, and the transferee
is:
(A) A covered swap entity, or
[[Page 9949]]
(B) A covered swap entity's counterparty to the swap, and the
counterparty represents to the covered swap entity that the
counterparty performed the transfer in compliance with the requirements
of paragraphs (h)(2)(i) and (ii) of this section;
(iii) The law of the European Union ceases to apply to the United
Kingdom pursuant to Article 50(3) of the Treaty on European Union,
without conclusion of a Withdrawal Agreement between the United Kingdom
and the European Union pursuant to Article 50(2);
(iv) The amendments do not modify any of the following: The payment
amount calculation methods, the maturity date, or the notional amount
of the swap;
(v) The amendments cause the transfer to take effect on or after
the date of the event described in paragraph (h)(2)(iii) of this
section transpires; and
(vi) The amendments cause the transfer to take effect by the later
of:
(A) The date that is one year after the date of the event described
in paragraph (h)(2)(iii) of this section; or
(B) Such other date permitted by transitional provisions under
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as
amended.
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the Supplementary Information section,
the Federal Deposit Insurance Corporation amends 12 CFR chapter III as
follows:
PART 349--DERIVATIVES
0
5. The authority citation for subpart A of part 349 continues to read
as follows:
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), and 12 U.S.C.
1818 and 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1813(q), 1818, 1819,
and 3108.
0
6. Section 349.1 is amended by adding paragraph (h) to read as follows:
Sec. 349.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(h) Legacy swaps. Covered swaps entities are required to comply
with the requirements of this part for non-cleared swaps and non-
cleared security-based swaps entered into on or after the relevant
compliance dates for variation margin and for initial margin
established in paragraph (e) of this section. Any non-cleared swap or
non-cleared security-based swap entered into before such relevant date
shall remain outside the scope of this part if changes are made to the
non-cleared swap or non-cleared security-based swap it as follows:
(1) [Reserved]
(2) The non-cleared swap or non-cleared security based swap was
amended under the following conditions:
(i) The swap was originally entered into, booked at, or otherwise
held at, an entity located in the United Kingdom before the relevant
compliance date established in paragraph (e) of this section and one
party to the swap booked it at, or otherwise held it at, an entity
(including a branch or other authorized form of establishment) located
in the United Kingdom;
(ii) The entity in the United Kingdom subsequently arranged to
amend the swap, solely for the purpose of transferring it to an
affiliate, or a branch or other authorized form of establishment,
located in any European Union member state or the United States, in
connection with the entity's planning for or response to the event
described in paragraph (h)(2)(iii) of this section, and the transferee
is:
(A) A covered swap entity, or
(B) A covered swap entity's counterparty to the swap, and the
counterparty represents to the covered swap entity that the
counterparty performed the transfer in compliance with the requirements
of paragraphs (h)(2)(i) and (ii) of this section; subject to the
following conditions:
(iii) The law of the European Union ceases to apply [to] the United
Kingdom pursuant to Article 50(3) of the Treaty on European Union,
without conclusion of a Withdrawal Agreement between the United Kingdom
and the European Union pursuant to Article 50(2);
(iv) The amendments do not modify any of the following: The payment
amount calculation methods, the maturity date, or the notional amount
of the swap or non-cleared swap;
(v) The amendments cause the transfer to take effect on or after
the date of the event described in paragraph (h)(2)(iii) of this
section transpires; and
(vi) The amendments cause the transfer to take effect by the later
of:
(A) The date that is one year after the date of the event described
in paragraph (h)(2)(iii) of this section; or
(B) Such other date permitted by transitional provisions under
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as
amended.
FARM CREDIT ADMINISTRATION
Authority and Issuance
For the reasons set forth in the preamble, the Farm Credit
Administration amends chapter VI of title 12, Code of Federal
Regulations, as follows:
PART 624--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES
0
1. The authority citation for part 624 continues to read as follows:
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 2154,
12 U.S.C. 2243, 12 U.S.C. 2252, 12 U.S.C. 2279bb-1.
0
2. Section 624.1 is amended by adding paragraph (h) to read as follows:
Sec. 624.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(h) Legacy swaps. Covered swaps entities are required to comply
with the requirements of this part for non-cleared swaps and non-
cleared security-based swaps entered into on or after the relevant
compliance dates for variation margin and for initial margin
established in paragraph (e) of this section. Any non-cleared swap or
non-cleared security-based swap entered into before such relevant date
shall remain outside the scope of this part if changes are made to it
as follows:
(1) [Reserved]
(2) The non-cleared swap or non-cleared security-based swap was
amended under the following conditions:
(i) The swap was originally entered into before the relevant
compliance date established in paragraph (e) of this section and one
party to the swap booked it at, or otherwise held it at, an entity
(including a branch or other authorized form of establishment) located
in the United Kingdom;
(ii) The entity in the United Kingdom subsequently arranged to
amend the swap, solely for the purpose of transferring it to an
affiliate, or a branch or other authorized form of establishment,
located in any European Union member state or the United States, in
connection with the entity's planning for or response to the event
described in paragraph (h)(2)(iii) of this section, and the transferee
is:
(A) A covered swap entity, or
(B) A covered swap entity's counterparty to the swap, and the
counterparty represents to the covered swap entity that the
counterparty performed the transfer in compliance with the requirements
of paragraphs (h)(2)(i) and (ii) of this section;
(iii) The law of the European Union ceases to apply to the United
Kingdom pursuant to Article 50(3) of the Treaty on European Union,
without conclusion of a Withdrawal Agreement between the
[[Page 9950]]
United Kingdom and the European Union pursuant to Article 50(2);
(iv) The amendments do not modify any of the following: The payment
amount calculation methods, the maturity date, or the notional amount
of the swap;
(v) The amendments cause the transfer to take effect on or after
the date of the event described in paragraph (h)(2)(iii) of this
section transpires; and
(iv) The amendments cause the transfer to take effect by the later
of:
(A) The date that is one year after the date of the event described
in paragraph (h)(2)(iii) of this section; or
(B) Such other date permitted by transitional provisions under
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as
amended.
FEDERAL HOUSING FINANCE AGENCY
Authority and Issuance
For the reasons set forth in the preamble, the Federal Housing
Finance Agency amends chapter XII of title 12, Code of Federal
Regulations, as follows:
PART 1221--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP
ENTITIES
0
1. The authority citation for part 1221 continues to read as follows:
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 4513,
and 12 U.S.C. 4526(a).
0
2. Section 1221.1 is amended by adding paragraph (h) to read as
follows:
Sec. 1221.1 Authority, purpose, scope, exemptions, and compliance
dates.
* * * * *
(h) Legacy swaps. Covered swaps entities are required to comply
with the requirements of this part for non-cleared swaps and non-
cleared security-based swaps entered into on or after the relevant
compliance dates for variation margin and for initial margin
established in paragraph (e) of this section. Any non-cleared swap or
non-cleared security-based swap entered into before such relevant date
shall remain outside the scope of this part if changes are made to it
as follows:
(1) [Reserved]
(2) The non-cleared swap or non-cleared security based swap was
amended under the following conditions:
(i) The swap was originally entered into before the relevant
compliance date established in paragraph (e) of this section and one
party to the swap booked it at, or otherwise held it at, an entity
(including a branch or other authorized form of establishment) located
in the United Kingdom;
(ii) The entity in the United Kingdom subsequently arranged to
amend the swap, solely for the purpose of transferring it to an
affiliate, or a branch or other authorized form of establishment,
located in any European Union member state or the United States, in
connection with the entity's planning for or response to the event
described in paragraph (h)(2)(iii) of this section, and the transferee
is:
(A) A covered swap entity, or
(B) A covered swap entity's counterparty to the swap, and the
counterparty represents to the covered swap entity that the
counterparty performed the transfer in compliance with the requirements
of paragraphs (h)(2)(i) and (ii) of this section;
(iii) The law of the European Union ceases to apply to the United
Kingdom pursuant to Article 50(3) of the Treaty on European Union,
without conclusion of a Withdrawal Agreement between the United Kingdom
and the European Union pursuant to Article 50(2);
(iv) The amendments do not modify any of the following: The payment
amount calculation methods, the maturity date, or the notional amount
of the swap;
(v) The amendments cause the transfer to take effect on or after
the date of the event described in paragraph (h)(2)(iii) of this
section transpires; and
(vi) The amendments cause the transfer to take effect by the later
of:
(A) The date that is one year after the date of the event described
in paragraph (h)(2)(iii) of this section; or
(B) Such other date permitted by transitional provisions under
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as
amended.
Dated: March 7, 2019.
Joseph M. Otting,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, March 12, 2019.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
Dated at Washington, DC, on March 8, 2019.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
By order of the Board of the Farm Credit Administration.
Dated at McLean, VA, this 5th day of March 2019.
Dale L. Aultman,
Secretary.
Dated: March 7, 2019.
Joseph M. Otting,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2019-05012 Filed 3-18-19; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P, 6714-01-P, 8070-01-P, 6705-01-P