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Financial Institution Letter
Final Rule and Interim Final Rule Regarding Swap Margin Requirements
June 25, 2020
Notes
 

Summary:

The FDIC, along with the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Farm Credit Administration, and the Federal Housing Finance Agency (collectively, the Agencies), have amended the swap margin requirements for a registered swap dealer that is an insured depository institution or is otherwise supervised by one of the Agencies.

A copy of the Final Rule and the Interim Final Rule regarding the swap margin requirements can be found on the FDIC’s website.

An overview of the final rule can also be found on the FDIC’s website.

Statement of Applicability to Institutions with Total Assets under $1 Billion: The swap margin rule exempts swaps entered into for hedging by financial institutions with total assets of $10 billion or less. Thus, the proposed amendments are not expected to affect such institutions.

Highlights:

  • permit 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 a discontinued reference rate, such as LIBOR,
  • modify initial margin requirements for non-cleared swaps between covered swap entities and their affiliates,
  • introduce an additional compliance date for initial margin requirements,
  • clarify the point in time at which trading documentation must be in place,
  • permit legacy swaps to retain their legacy status in the event that they are amended due to technical amendments, notional reductions, or portfolio compression exercises,
  • make 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, and
  • address comments received in response to the agencies’ publication of the interim final rule dealing with Brexit-related issues.

The Agencies have also modified the initial margin phase-in schedule for smaller swap market participants. The compliance date under the initial margin requirements of the swap margin rule has been extended to September 1, 2021, for swap entities and counterparties with average annual notional swap portfolios of $50 billion to $750 billion. The Agencies have also added an additional initial margin compliance date of September 1, 2022, for counterparties with average annual notional swap portfolios of $8 billion to $50 billion.

Distribution:

FDIC-Supervised Institutions

Suggested Routing:

Chief Executive Officer
Chief Financial Officer
Chief Risk Officer

FIL-66-2020
Attachments
Margin and Capital Requirements for Covered Swap Entities; Final Rule
Margin and Capital Requirements for Covered Swap Entities – TRIPRA Amendment; Final Rule
Margin and Capital Requirements for Covered Swap Entities – EMNA Amendment; Final Rule
Margin and Capital Requirements for Covered Swap Entities – Brexit Amendment; Interim Final Rule
Last Updated: June 25, 2020