Yesterday, June 25, the Federal Deposit Insurance Corporation (FDIC) approved their Final Rule and Interim Final Rulemaking (IFR), both titled Margin and Capital Requirements for Covered Swap Entities.
SFA previously submitted comments to the prudential regulators last December on their proposed changes to the Swap Margin Rule, expressing support for the amendments to help ensure a safe transition away from LIBOR.
The Final Rule that was released yesterday makes the following changes to the Swap Margin Rule:
- Permits swaps entered into prior to an applicable compliance date (legacy swaps) to retain their legacy status in the event that they are amended to replace an interbank offered rate (IBOR) or other discontinued rate,
- Modifies initial margin requirements for non-cleared swaps between covered swap entities and their affiliates,
- Introduces an additional compliance date for initial margin requirements,
- Clarifies the point in time at which trading documentation must be in place,
- Permits legacy swaps to retain their legacy status in the event that they are amended due to technical amendments, notional reductions, or portfolio compression exercises,
- Makes technical changes to relocate the provision within the rule addressing amendments to legacy swaps that are made to comply with the qualified financial contract rules (QFC Rules), and
- Addresses comments received in response to the agencies’ publication of the interim final rule dealing with Brexit-related issues.
The IFR provides covered swap entities additional time to comply with the Swap Margin Rule’s Phases 5 and 6 initial margin implementation deadlines by delaying the effective date for Phase 5 from September 1, 2020 to September 1, 2021 and, for Phase 6, from September 1, 2021 to September 1, 2022. The Final Rule and IFR are being adopted jointly by the prudential regulators. Additional details may be found in the FDIC’s Memorandum.