The Institute of International Bankers ("IIB"), ISDA, SIFMA and NFA recommended (see here and here) recommended several modifications to a CFTC proposal to amend capital and financial reporting requirements for swap dealers ("SDs") and major swap participants.

As previously covered, the CFTC reopened the comment period for a proposed rule that was first published in December 2016. The proposal would establish certain liquidity, reporting and notification requirements, and would obligate entities covered by the proposal to keep current books and records in accordance with U.S. Generally Accepted Accounting Principles. Firms would be able to use models, although the models would have to be approved by the regulators. In addition, the rules provide for a "comparability" determination that will allow non-U.S. swap dealers that are not subject to regulation by the Federal Reserve Board to be subject to their home country capital rules.

IIB, ISDA and SIFMA

The trade associations warned that the 2016 version of the proposal would have significant negative impacts on the U.S. swaps market. Specifically, the trade associations criticized the proposal for:

  • imposing minimum capital requirements at greater levels than the SEC or prudential regulators, despite the Commodity Exchange Act mandating similar minimum requirements of the agencies;

  • putting nonbank SDs at a disadvantage competitively due to new higher minimum requirements, as opposed to the current "flexible" liquidity risk management rules; and

  • requiring "extensive and costly" position and margin reports under capital rules.

NFA

NFA encouraged the CFTC to use the capital model approval framework it proposed in a 2017 comment letter. As previously covered, the approach would (i) exempt SDs from the formal review process when they used models that had been reviewed previously by a prudential regulator and (ii) allow the CFTC and NFA to focus on models that had never been subjected to regulatory review.

In addition, NFA urged the CFTC to:

  • issue substituted compliance relief "well in advance" of the agency's capital compliance date for non-U.S. Covered SDs;

  • provide ample time for the association to review and approve Covered SD capital models, in light of the market and credit risk models' complexity;

  • seek additional feedback from Covered SDs on a compliance date that would provide enough time to adjust capital models accordingly with the rules, if adopted; and

  • update financial recordkeeping requirements by either implementing standardized reporting forms or prescribing a certain form and manner for financial filings.