In a joint statement, the Federal Reserve Board ("FRB") and the OCC (collectively, the "Agencies") said they will not recommend enforcement action against swap dealers that are parties to certain legacy swaps in connection with the UK's departure from the EU ("Brexit"). The no-action relief follows the adoption of amendments to Regulation KK ("Swaps Margin and Swaps Push-Out") to aid covered swap entities in preparation for Brexit.
In light of uncertainty regarding whether a free trade agreement between the UK and EU would grant financial services-related "passporting rights" for UK entities, the Agencies stated that they will not recommend enforcement action against a swap dealer that is a party to a "legacy" (i.e., pre-compliance date) swap amended under the following circumstances:
- either one or both parties booked or held the legacy swap at a UK-located entity (including branches located in the UK);
- the swap is amended by a UK-located entity for the sole purpose of transferring it to an authorized establishment located in an EU member state or in the United States;
- following the amendment of the legacy swap, the covered swap entity continues to treat the swap as a legacy swap;
- the legacy swap transfer is completed by the later of (i) January 1, 2022 or (ii) a year following the expiration of EU passporting rights; and
- amendments to the legacy swap do not (i) change its payment amount calculation methods, (ii) extend its maturity date or (iii) raise its total effective notional amount.
Commentary Nihal Patel
The joint statement is substantially similar to no-action relief provided by the CFTC staff applicable to swap dealers subject to CFTC margin requirements.
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