Commodity Futures Trading Commission (CFTC) Alert! CFTC Staff Extends Temporary No-Action Letter Regarding Certain Financial Reporting Requirements for Bank Swap Dealers.
https://www.cftc.gov/csl/23-11/download
Wut mean?
The Market Participants Division (MPD) of the U.S. Commodity Futures Trading Commission (CFTC) is extending the temporary no-action position established in CFTC Staff Letter 21-18. This pertains to the financial reporting requirements for eligible swap dealers (SDs).
The no-action position was initially taken in response to a joint letter dated August 20, 2021, and a subsequent request for extension was received on June 15, 2023. The no-action position means that the MPD will not recommend enforcement action against certain SDs subject to capital requirements of a prudential regulator (Bank SDs) if they fail to comply with specific financial reporting requirements before October 6, 2023.
The CFTC's regulations require each Bank SD to file unaudited quarterly financial information within 30 calendar days of the end of the Bank SDโs fiscal quarter. This information includes a statement of financial condition (Balance Sheet), a statement of regulatory capital (Statement of Regulatory Capital), and a schedule of the Bank SDโs aggregate positions in security-based swaps, mixed swaps, swaps, and other derivatives (Schedule 1).
The Balance Sheet and Statement of Regulatory Capital are intended to be identical to the Federal Financial Institutions Examination Council (FFIEC) Form 031 (Call Report), which banks, including certain Bank SDs, file with their respective prudential regulators. However, Schedule 1 is unique to the CFTC and contains position information that the Commission uses to monitor the activities of Bank SDs in the derivatives markets.
The no-action position is being extended to allow Bank SDs more time to comply with these reporting requirements.
The Staff issued a letter (Letter 21-18) stating that they won't recommend enforcement action against Bank Swap Dealers (SDs) if they don't comply with certain financial reporting requirements, under specific conditions. This was a temporary measure set to expire on October 6, 2023.
Bank SDs were allowed to submit alternative financial reports to the Commission instead of the ones required by Regulation 23.105(p)(2) and Appendix C. This also applied to certain non-U.S. domiciled Bank SDs subject to home country capital standards.
The Staff received a request to extend the expiration date of Letter 21-18. The requesters were concerned that imposing the full rule set at the time of the expiration of Letter 21-18 would be a significant operational challenge for Bank SDs and may ultimately be unnecessary and duplicative.
After reviewing the situation, the Division decided to extend the expiration of Letter 21-18 until the earlier of October 6, 2025 or the adoption of any revised financial reporting requirements applicable to Bank SDs under Regulation 23.105(p).
The Staff has agreed to extend this no-action position while potential rule amendments are being considered by the Commission. They believe this won't negatively impact their ability to monitor the capital position of Bank SDs.
The Staff has set out conditions under which they won't recommend enforcement action:
- Bank SDs that file a Call Report with their U.S. prudential regulator can file alternative schedules with the Commission instead of the Balance Sheet and Statement of Regulatory Capital required under Appendix C.
- Non-U.S. Bank SDs that don't file a Call Report with a U.S. prudential regulator can file a statement of financial condition and a statement of regulatory capital instead of the Balance Sheet and Statement of Regulatory Capital required under Appendix C.
- Non-U.S. Bank SDs can prepare and present their financial statements in accordance with the accounting standards permitted by their home country regulator, as long as the statements are submitted to the Commission in English, with balances converted to U.S. dollars.
- Non-U.S. Bank SDs must file their financial statements within 15 days of the earlier of the date such financial statements are filed with their home country regulator or the date such financial statements are required to be filed with their home country regulator.
- Non-U.S. Bank SDs that are also registered with the SEC as a security-based swap dealer can file a FOCUS Report Part IIC, or other SEC approved financial reports and schedules, with the Commission instead of their reporting obligation under Regulation 23.105(p)(2).
This no-action position will expire the earlier of October 6, 2025 or the adoption of any revised financial reporting and notification requirements applicable to Bank SDs under Regulation 23.105(p).
This letter represents the views of the Division only, and is not binding on the Commission. The position taken in this letter does not excuse persons relying on it from compliance with any other applicable requirements contained in the CEA or in Commission regulations.
TLDRS:
- The Market Participants Division (MPD) of the U.S. Commodity Futures Trading Commission (CFTC) has extended a temporary no-action position, which means they won't recommend enforcement action against certain Swap Dealers (SDs) who fail to comply with specific financial reporting requirements. This position, initially set to expire on October 6, 2023, has been extended to October 6, 2025 or until any revised financial reporting requirements are adopted.
- The no-action position allows Bank SDs, including certain non-U.S. domiciled ones, to submit alternative financial reports to the Commission instead of the ones required by Regulation 23.105(p)(2) and Appendix C. These alternative reports must meet certain conditions, such as being in English, converted to U.S. dollars, and filed within a specific timeframe.
- This decision was made to avoid imposing a full rule set at the time of the original expiration date, which could have been a significant operational challenge for Bank SDs. The MPD believes this extension won't negatively impact their ability to monitor the capital position of Bank SDs.
Press Release: https://www.cftc.gov/PressRoom/PressReleases/8746-23
The Commodity Futures Trading Commissionโs Market Participants Division (MPD) today announced it issued a temporary no-action letter extending CFTC Staff Letter No. 21-18 concerning financial reporting obligations for swap dealers (SDs) subject to capital requirements of a prudential regulator (bank SDs) under the CFTCโs SD financial reporting rules.
Through CFTC Staff Letter 23-11, MPD is extending a no-action position to bank SDs that report utilizing certain alternative forms, filing deadlines, and/or reporting standards otherwise applicable to them by their prudential or home country regulators, in lieu of complying with the CFTCโs financial reporting requirements and subject to certain specified conditions. MPD determined that extending the no-action position temporarily would not adversely impact its ability to monitor the capital position of bank SDs under the Commodity Exchange Act and CFTC regulations.
Todayโs no-action letter was issued in response to a joint request received from the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association on behalf of their SD members, who would otherwise be required to comply with the CFTCโs financial reporting requirements by October 6. The no-action position taken by MPD will expire on the earlier of October 6, 2025 or the adoption by the CFTC of any revised financial reporting requirements applicable to such bank SDs.
