Alert January 08, 2013

CFTC Issues Additional No-Action Relief From Swap Dealer De Minimis Calculations for U.S. Banks Wholly Owned by Foreign Entities

The CFTC’s Division of Swap Dealer and Intermediary Oversight (the “Division”) has issued an additional no-action letter (the “New No-Action Letter”) permitting foreign-owned U.S. banks to exclude the swap activity of their foreign affiliates, or the U.S. branches of such affiliates, from the calculations of swap activity for purposes of the de minimis exception included in the definition of “swap dealer.” The relief follows a previous no-action letter (the “Previous No-Action Letter”) issued on December 20, 2012 (discussed in the December 26, 2012 Financial Services Alert).  The CFTC press release accompanying the New No-Action Letter explained that the New No-Action Letter extends the relief provided in the Previous No-Action Letter “to foreign-owned U.S. banks with differing ownerships structures, including state-chartered banks regulated by the Federal Reserve or the Federal Deposit Insurance Corporation.”

Conditions.  Relief is conditioned on satisfaction of a number of requirements.  For example, the bank must be wholly owned, directly or indirectly, by a foreign entity that is registered with the CFTC as a swap dealer; an entity that directly or indirectly owns the U.S. bank must be registered with and subject to oversight and supervision by the Federal Reserve as a bank holding company and must file its financial statements with either the SEC or the Federal Reserve; no swap obligations of the foreign-owned U.S. bank may be guaranteed or otherwise supported by its foreign affiliates; and the foreign-owned U.S. bank must not rely on its foreign affiliates for operational servicing of its swaps business and must make its own credit determinations with respect to its swaps activities. 

Broader Relief.  The relief in the New No-Action Letter is generally somewhat broader than that provided in the Previous No-Action Letter.  For example, the Previous No-Action Letter provided relief only to foreign-owned U.S. banks whose “direct parent entity” is a financial holding company that files its financial statements with the SEC.  The New No-Action Letter, in contrast, provides relief to foreign-owned U.S. banks for which a direct or indirect owner is a bank holding company (a broader category than that of “financial holding company”) that files its financial statements with either the SEC or the Federal Reserve. 

Claiming Relief.  Banks wishing to avail themselves of the relief must e-mail certain information to the CFTC.  The process for doing so is the same under the New No-Action Letter as under the Previous No-Action Letter.  Banks that have already submitted a claim of relief under the Previous No-Action Letter may wish to make a similar submission explicitly claiming relief under the New No-Action Letter as well, in case their situation changes in the future such that they no longer qualify under the Previous No-Action Letter but continue to qualify under the New No-Action Letter.  Those that have not yet claimed the relief may wish to explicitly refer to the New No-Action Letter to clarify their claim under the New No-Action Letter’s broader provisions.