5390(c)(8)(D). The Secretary has determined that it is important for data on the largest, most systemically important entities to be available as soon as reasonably possible. The QFC Stay Rules provide for a phased- in compliance period based on counterparty type. The final rule should provide benefits by reducing the likelihood that a future failure of an insured depository institution with a large and complex portfolio of QFCs could result in unnecessary losses to the receivership. Indicate whether the counterparty identifier is an LEI, Information needed to identify and, if necessary, communicate with counterparty, Provide an identifier for the parent entity that directly controls the counterparty. However, as noted above, it is not clear from these studies the extent to which the change in company valuation is driven by the costs of the QFC resolution process. Information needed to identify unique netting sets, Netting agreement counterparty identifier, Provide a netting agreement counterparty identifier. The Final Rules provide for a staggered schedule based on the total consolidated assets of the records entities (or other members of their corporate group) on the understanding that larger entities will generally have greater capacity to apply to the task of coming into initial compliance with the rules. The file structure for Appendix B requires four data tables: (1) Table A-1—Position-level data, (2) Table A-2—Counterparty Netting Set Data, (3) Table A-3—Legal Agreements and (4) Table A-4—Collateral Detail Data. headings within the legal text of Federal Register documents. (1) Records entity means any financial company that: (i) Is not an excluded entity as defined in § 148.2(f); (iii) (A) Is subject to a determination that the company shall be subject to Federal Reserve supervision and enhanced prudential standards pursuant to 12 U.S.C. 2,099 FDIC-insured institutions with total consolidated assets of less than $50 billion out of 5,824 reported some volume of QFCs on their Consolidated Reports of Condition and Income. Federal Reserve Bank of New York. As noted by commenters, regulated financial companies must maintain extensive QFC records pursuant to other regulatory requirements. For transfer, see 12 U.S.C. 78c(a)(71); or, (iii) A major security-based swap participant as defined in 15 U.S.C. −20000.25 7-12. For example, one commenter indicated that a clearing organization can be expected to maintain trade records; aggregated trade data by clearing member; records of the amount of margin posted by or through clearing members; detail on the amount, type, and location of collateral; records of variation margin payments; and the terms of each QFC cleared by the derivatives clearing organization as provided in its rulebook. Qualified Financial Contracts Recordkeeping Related to Orderly Liquidation Authority; Final Rule. This field is validated against CO.2 (for affiliates) or CP.2 (for 78c(a)(67); or. Consistency of the information as to the IDI and its reportable subsidiaries as well as the other entities in the corporate group will provide the FDIC with a more comprehensive understanding of the QFC exposure of the group. As referenced above, under section 210(c)(16) of the Act, the contracts of subsidiaries or affiliates of a covered financial company that are guaranteed or otherwise supported by or linked to such covered financial company can be enforced by the FDIC as receiver of the covered financial company notwithstanding the insolvency, financial condition, or receivership of the financial company if the FDIC transfers the guarantee or other support to a bridge financial company or other third party. The first step is figuring out where the relevant QFC positions are. (u) Subsidiary, with respect to another entity, means an entity that is, or is required to be, consolidated by such other entity on such other entity's financial statements prepared in accordance with U.S. generally accepted accounting principles or other applicable accounting standards. The FDIC also considered requiring IDIs that report on Appendix B to report QFC information for all subsidiaries rather than only “reportable subsidiaries.” However, expanding the scope of recordkeeping to all subsidiaries would be burdensome and would also be redundant for corporate groups that are subject to Part 148 because QFC information for subsidiaries that are not reportable subsidiaries (other than IDIs and insurance companies) is required under Part 148. Title II contains no such limitation, and the Secretary believes that adding such a limitation to the Final Rules would not be appropriate. Information needed to determine exposure to other entities. documents in the last year, 434 To estimate the number of institutions affected by the final rule the FDIC analyzed the frequency with which FDIC-insured institutions with consolidated assets of less than $50 billion became in a troubled condition. In turn, reference to derivative liabilities alone could obscure entities' level of derivatives activity to the extent a financial company's financial statements take into account the effects of netting agreements and cash collateral held with the same counterparty on a net basis. 8-10; ACLI letter, p. 11-13; ICI Letter, pp. It should be noted that on Table A2 the fields for Records Entity Identifier, Netting See DTCC letter, p. 7; OCC letter, pp. See also Dodd-Frank Act § 165(d) (12 U.S.C. 144. The following discussion provides a summary of the Proposed Rules, the comments received, and the Secretary's responses to those comments, including modifications made in the Final Rules. It has been determined that the Final Rules are a significant regulation as defined in section 3(f)(1) of Executive Order 12866, as amended. Required if A1.21 is “Y”. Large Corporate Groups Subject to the Rules. Market value of all positive positions in A1 for the given netting agreement identifier should be equal to this value. If A3.10 is ‘Y’, A3.11 is validated against CP.2 and A3.12 is validated against A3.3. 5463; (C) Is identified as a global systemically important bank holding company pursuant to 12 CFR part 217; (D)(1) Has total assets on a consolidated basis equal to or greater than $50 billion; and, (i) Total gross notional derivatives outstanding equal to or greater than $250 billion; or, (ii) Derivative liabilities equal to or greater than $3.5 billion; or, (E)(1) Is a member of a corporate group in which at least one financial company meets the criteria under one or more of paragraphs (n)(1)(iii)(A), (B), (C), or (D) of this section; and, (2)(i) Consolidates, is consolidated by, or is consolidated with such financial company on financial statements prepared in accordance with U.S. generally accepted accounting principles or other applicable accounting standards; or. The recent financial crisis has demonstrated that management of QFC positions, including steps undertaken to close out such positions, can be an important element of a resolution strategy which, if not handled properly, may magnify market instability. Treasury has published a notice of proposed rulemaking for Qualified Financial Contracts (QFCs) recordkeeping, which would require certain financial companies to maintain standardized records of contracts such as swap agreements and repurchase agreements. In addition, subject to certain exceptions, new regulations that impose additional reporting, disclosures, or other new requirements on insured depository institutions must take effect on the first day of a calendar quarter that begins on or after the date Start Printed Page 35599on which the regulations are published in final form. In addition, the definition of “records entity” has been revised in the Final Rules to refer to members of a corporate group that are consolidated under accounting standards, which should reduce the number of entities that would be included as records entities and ensure that records entities that are members of a corporate group are able to coordinate their compliance with the recordkeeping requirements of the rules. By contrast, a records entity may have a QFC portfolio that falls below the threshold but is comprised of hundreds of open positions, such that the portfolio would pose challenges for the receiver to review and act upon during the one business day stay period and thus would necessitate the advance recordkeeping required by the rules. The final rule requires that full scope entities include, among other items, records for their reportable subsidiaries. However, If the netting set for a QFC is all the QFCs under the same master agreement, then the be 100.00. Under the Final Rules, all but the very largest institutions will have at least two years to comply with the rules' requirements.[135]. Larger entities that are required to report on Appendix B due to a composite CAMEL rating of 3 generally need a longer period to comply and, because an entity with a composite CAMEL rating of 3 is less likely to fail imminently, the additional time for recordkeeping should not pose significant additional risks that the FDIC as receiver will lack the information it needs with respect to the QFC portfolio. See IIB letter, pp. SUMMARY: The Secretary of WKH7UHDVXU\ WKH³6HFUHWDU\´), as Chairperson of the Financial Stability Oversight &RXQFLO WKH³&RXQFLO´ is adopting final rules WKH³Final RuleV´) in consultation with the Federal Deposit ,QVXUDQFH&RUSRUDWLRQ WKH³)',&´ to implement the qualified financial contUDFW ³4)&´) recordkeeping However, assuming the costs would be incurred evenly over the entire compliance period, this would result in annual one-time, initial recordkeeping costs ranging from $814,000 for a large corporate group with a 540 day compliance period to $305,267 for a large corporate group with a four year compliance period. Required if A1.21.3 is “Y”. Let’s say the market value of QFCs under a Netting Set is $100 (A2.6) and This difference reflects the fact that the burden of recordkeeping under Part 148 is imposed regardless of the condition of the Part 148 subject entities and is intended to protect the financial stability of the United States which, necessarily, requires considerations that relate to interconnectedness to the U.S. financial system. 157. Gross notional derivatives outstanding relates directly to three of the factors enumerated in section 210(c)(8)(H)(iv)—complexity, interconnectedness, and the dollar amount of QFCs. Regulatory Flexibility Act” below. In order for an LEI to be properly maintained, it must be kept current and up to date according to the standards established by the Global LEI Foundation. Aggregate current market value in U.S. dollars of all positions under this netting agreement, Information needed to help evaluate the positions subject to the netting agreement. One data row, relating to the status of non-reporting subsidiaries under the provisions of Part 148, has been omitted from the tables for full scope entities. RE and CP is guaranteed by CP-P (agreement ID GTY1) for the benefit of RE. The final rule also changes the requirement in Current Part 371 with respect to the point of contact at the records entity to answer questions with respect to the electronic files being maintained at the records entity. the FDIC will need to be able to identify all affiliates, as so defined. The FDIC has estimated that the average hourly wage rate for recordkeepers to comply with the initial recordkeeping burden is approximately $95.50 per hour based on average hourly wage information by occupation from the U.S. Department of Labor, Bureau of Labor Statistics. As discussed in detail in Section II.C. Information needed to determine credit enhancement, Third-party credit enhancement provider identifier (for the benefit of the records entity), If QFC is covered by a guarantee or other third-party credit enhancement, provide an identifier for provider. As discussed in detail in section II above, after carefully considering all of the comments received and consulting with the FDIC, Treasury has adopted these Final Rules. The Trump Effect: Trump's Transition team vowed to "dismantle" Dodd-Frank, and Republican lawmakers have sought to abolish the OLA. A3.12.3 must be ‘NA’. Note that Although it is unlikely that any small entities would be affected because affiliated members generally do not meet the definition of “small entity,” this revision will minimize the burden faced by affiliated members of a corporate group. The Proposed Rules also included within the definition of “records entity” financial companies with assets greater than or equal to $50 billion. Each of these fields will also have field definition of Varchar(500) – see next Several commenters argued that the requirements of the Proposed Rules should not apply to records entities that have a minimal level of QFC activity. Below is the schematic of this trading relationship and the The Final Rules also add new fields to Table A-2 (A2.4.1 and A2.5.1-.5) to provide additional information as to third-party credit enhancements. 33. 1376 (2010). 34. Market value of all positions in A1 for the given netting agreement identifier should be equal to this value. Scope, purpose, effective date, and compliance dates. [129] Accordingly, the use of LEIs in Part 371 will ensure that variations from formal names do not result in the misidentification of a records entity or counterparty and thus help ensure that the FDIC satisfies its obligation to transfer all, or none, of the QFC positions between a failed IDI and a counterparty and its affiliates. Required if A2.5 is “Y”. The total estimated one-time cost for all large corporate group respondents to comply with the initial recordkeeping burden, is approximately $36,384,000, of which $21,384,000 is due to the burden hours and $15,000,000 is for systems development and modification costs. Sum of QFC exposure (A1.17) by A1.2, A1.10 and A1.9 must match the sum of QFC exposure (A2.6) by The collateral posted by the records If all the QFCs of the underlying QFC obligor identifier are covered by the guarantee or other third party credit enhancement, enter “All.”. Location field lengths are validated against a maximum field length of 150 characters. Duarte, F. and Eisenbach, T.M. Journal of Financial Economics 97: 470-487. Row A1.13 adds a requirement that the trade date of a position is specified in order to help the FDIC differentiate between different positions with the same counterparty. (HoldCo): If the Full Scope Part 371 entity (XYZ Bank) is not a part of a Part 148 Based on consideration of comments received, the Secretary determined that this information is not necessary to the FDIC so long as records entities are required to provide current information on the booking location and the booking unit or desk pertaining to QFCs. However, they could not do so since their positions were deemed to have terminated two days earlier.”. Such non-insurance company subsidiaries and affiliates could themselves be determined to be a covered financial company or covered subsidiary. You will upload the data Section 371.1 sets forth the scope and purpose of the final rule, as well as required compliance dates. The President of the United States communicates information on holidays, commemorations, special observances, trade, and policy through Proclamations. [103] the Bank Holding Company Act of 1956 ("BHCA"),12 the statutory purpose of the Proposed Rule would not be served by applying final QFC recordkeeping requirements to individual investment funds. Specify whether the entity identifier provided is an LEI. We’ve made big changes to make the eCFR easier to use. In contrast, a multivariable analysis is considered in the process for designation of financial companies for heightened supervision by the FSOC. positions”, then the “DUP” flag has to be to the first entry followed by comma “,” delimiter Information needed to readily track and distinguish positions, Provide a counterparty identifier. Thus, an understanding of the relationship of the counterparties is critical to the FDIC's function as receiver. The information required by Table A-2 must be maintained at each level of netting under the relevant governing agreement. (3) A records entity may request an extension of time by submitting a written request to the FDIC at least 15 days prior to the deadline for its compliance with the recordkeeping requirements of this part. All positions that are related to one another should have same designation in this field, Provide a unique reference number for any loan held by the records entity or a member of its corporate group related to the position (with multiple entries delimited by commas), Identifier of the lender of the related loan, For any loan recorded in A1.23, provide identifier for records entity or member of its corporate group that holds any related loan. Transition for Existing Records Entities, C. The Treasury and General Government Appropriations Act, 1999, D. Small Business Regulatory Enforcement Act, E. Riegle Community Development and Regulatory Improvement Act. [3] Combination A1.2 + A1.5 + A1.6 should have a corresponding unique combination BL.2 + BL.3 + BL.4 entry in Booking Location Master Table. if, for a single netting system. 601 et seq.) (2) A mutual insurance holding company that meets the conditions set forth in 12 CFR 380.11 for being treated as an insurance company for the purpose of section 203(e) of the Dodd-Frank Act, 12 U.S.C. See 12 CFR part 1310, appx. This has the effect of substantially narrowing the scope of entities subject to the recordkeeping requirements of the Final Rules, as discussed more fully below, and thereby reducing the costs imposed by the rules. ACTION: Final rule. [88] Therefore, the majority of the recordkeeping burden stemming from the Final Rules will be borne by the entity responsible for each large corporate group's centralized systems, while relatively little initial and ongoing recordkeeping burden will be imposed on their affiliated financial companies. identifier of the entity (CO.2 or CP.2) as the immediate parent identifier (CO.5 or CP.7) and See AMG letter, p. 13; Regional Banks letter, p. 4. To further reduce the burden of Table A-3, the Final Rules eliminate the following proposed data fields: Basic form of agreement; legal name of guarantor of records entity obligations; industry code (GIC or SIC code); and legal name of counterparty obligations. [84] Information needed to validate compliance with the requirements of this part REN = Records entity (reporting). The file structure for Appendix A requires two data tables: (1) Table A-1—Position-level data and (2) Table A-2—Counterparty Netting Set Data. Recordkeeping for QFCs of Certain IDI Subsidiaries, 5. In order for an LEI to be properly maintained, it must be kept current and up to date according to the standards established by the Global LEI Foundation. They must also identify relevant governing law and include a list and description of any events of default, termination While there are several non-substantive, clarifying drafting changes and additions to rows included in the existing Table A-2, the substantive additions are limited. Thus, based on the section 201(a)(11) definition of “financial company” and the section 201(a)(8) definition of “covered financial company,” the following entities are not required to maintain records under the Final Rules: Records Entity: Each records entity is required to maintain records with respect to all of its QFCs unless such records entity receives an exemption under the rules. These changes are for clarity only and are not intended to make substantive changes in the meaning of this term. Each document posted on the site includes a link to the If not applicable, Based on discussions with the staff of the PFRAs who are familiar with financial company operations and have experience supervising financial companies with QFC portfolios, the Secretary believes that the large corporate groups that would be subject to the Final Rules should already be maintaining much of the QFC information required to be maintained under the Final Rules as part of their ordinary course of business. Should be a valid entry in the Corporate Org Master Table. See ACLI letter, p. 11; TIAA-CREF letter, p. 7. [FR Doc. In determining whether to grant any requests from records entities for exemptions, the Secretary may take into consideration their size, risk, complexity, leverage, frequency and dollar amount of QFCs, interconnectedness to the financial system, and any other factors deemed appropriate, including whether the application of one or more requirements of the rules is not necessary or appropriate to achieve the purpose of the rules. One commenter proposed excluding from the definition of “total assets” any assets under management, even if those assets are included on a balance sheet under applicable accounting standards. Section 371.1(c) of the final rule requires that records entities provide the FDIC the name and contact information for the person responsible for recordkeeping, and § 371.3(b) requires that the FDIC is notified within three business days of any change to such information. The final rule will be effective no earlier than the first day of a calendar quarter that begins on or after the date on which the final rule is published. The 7 a.m. deadline is included in light of the limited stay period for transfer of QFCs by the FDIC as receiver, which ends at 5 p.m. (Eastern Time) on the business day following the date of the appointment of the receiver. 140. the FDIC acting in any capacity. . You will provide the FDIC with a Point The Secretary requested comments on whether the rules should require that the parent company of a corporate group aggregate the records of the records entities of the corporate group. Covered by third-party credit enhancement agreement (for the benefit of the records entity)? The Regulatory Flexibility Act (RFA), 5 U.S.C. [24] In such cases, the netting agreement counterparty identifier is necessary to enable the receiver to link certain position-level data from Table A-1 to the applicable netting-set level data under Table A-2. The Secretary has, instead of excluding certain types or sizes of members of a corporate group from the definition of “records entity,” differentiated among financial companies by providing the de minimis exemption discussed below for records entities that are a party to 50 or fewer QFCs. The TCH/SIFMA Letter noted that unlike Part 148, the proposed rule included as full scope entities IDIs with $50 billion or more in total assets, without regard to the scope of their QFC activities, and proposed that a QFC activity filter be added to the final rule. The Final Rules also Start Printed Page 75636include definitions of “gross notional amount of derivatives outstanding” and “derivative liabilities,” as discussed above, and a definition of “top-tier financial company,” as discussed below. The FDIC has estimated that the average hourly wage rate for recordkeepers to comply with the recordkeeping burden is approximately $95.50 per hour based on average hourly wage information by occupation from the U.S. Department of Labor, Bureau of Labor Statistics. A point of contact is necessary during the phase when an IDI is required to establish its recordkeeping systems so that the FDIC will know whom to contact in order to ensure an IDI is proceeding promptly to establish a conforming recordkeeping system. The FDIC believes that this comment does not take into account the different statutory bases for Part 148 and Part 371. Provide contact name for counterparty as provided under notice section of agreement, Counterparty contact information: address, Provide contact address for counterparty as provided under notice section of agreement, Provide contact phone number for counterparty as provided under notice section of agreement, Counterparty's contact information: email address, Provide contact email address for counterparty as provided under notice section of agreement, Collateral posted/collateral received flag, Enter “P” if collateral has been posted by the records entity. This information is important because a records entity often derives data from multiple systems in multiple locations and the FDIC needs to be able to expeditiously determine whether, due to differences in time zone, legal holidays or other factors, any of the data is not current. Coval and Stafford (2007) [142] The Office of Management and Budget has determined that the final rule is not a “major rule” within the meaning of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), (5 U.S.C. The implementation costs borne by covered institutions primarily include costs that would be incurred in order to accommodate the new data elements. However, the Secretary has eliminated data fields that the Secretary decided would not provide a sufficiently significant benefit to the FDIC as receiver to justify the Start Printed Page 75639burden they would place on records entities. The release stated that “[g]iven the FDIA Act's short time frame for such decision by the FDIC, in the case of a QFC portfolio of any significant size or complexity, it may be difficult to obtain and process the large amount of information necessary for an informed decision by the FDIC as receiver unless the information is readily available to the FDIC in a format that permits the FDIC to quickly and efficiently carry out an appropriate financial and legal analysis.” [7] [79] Provide LEI for records entity. In making any decision regarding exemptions, the Secretary continues to believe that it is appropriate to obtain a recommendation from the FDIC, prepared in consultation with the PFRAs for the relevant records entities. For the receiver to make a well-informed decision that complies with the requirements of Title II discussed in section I, the receiver must have sufficient information to fully evaluate and model various QFC transfer or termination scenarios as well as the potential impact of its transfer or retention decisions. The Final Rules provide for thresholds of $250 billion of total gross notional derivatives outstanding and $3.5 billion of total derivative liabilities. See also 12 U.S.C. The Final Rules will likely impose a one-time initial burden on the affiliated financial companies in connection with necessary updates to their recordkeeping systems, such as systems development or modifications. Previously, the Secretary estimated the costs of the initial and annual recordkeeping burdens, as well as the annual reporting burden, associated with the Proposed Rules in both man-hours and dollar terms and requested comment on whether the cost estimates were reasonable. 51. The Secretary has determined that the FDIC as receiver in a Title II resolution would need to know the identities of the affiliates, as defined by reference to the BHC Act definition of “control,” of the records entity's counterparties. 47. As of Date (A1.1, A2.1, A3.1, A4.1, CO.1, CP.1, BL.1, SA.1) must be within 3 days of the On December 28, 2016, the FDIC published a notice of proposed rulemaking (the “NPR”), which proposed to amend and restate Part 371 in its entirety. The letter also suggested that the FDIC consider, for IDIs that have been required to comply with Current Part 371, the costs of modifying existing systems to comply with the data requirements of the final rule and determine whether the systems that the IDIs have already developed are sufficient to meet the FDIC's needs.
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