Fed, OCC to provide ‘no-action’ relief for certain legacy swaps affected by Brexit

A period of “no-action” relief for certain noncleared legacy swaps affected by “Brexit” – or the United Kingdom’s (UK) withdrawal from the European Union (EU) – and the expiration of certain “passporting” rights was announced Friday by the Federal Reserve Board and Office of the Comptroller of the Currency (OCC).

The agencies noted that covered swap entities subject to the Federal Reserve’s and OCC’s swap margin rules currently operate in Brexit-affected jurisdictions.

The statement includes specific conditions limiting the scope of this no-action relief, the agencies said. The relief applies specifically until the later of Jan. 1, 2022, or one year after the expiration of European Union passporting rights (that is, the ability of covered swap entities to continue servicing cross-border clients) unless the statement is amended, extended, or superseded in writing before that time.

They said that given the uncertainty regarding whether the UK and EU will agree to a free trade agreement granting UK companies passporting rights related to financial services, Fed and OCC staff would not recommend agency action if a covered swap entity is a party to a legacy swap that was amended under the following conditions:

  • One or both parties booked the legacy swap at, or otherwise held the legacy swap at, an entity (including a branch or other authorized form of establishment) located in the UK;
  • An entity in the UK amends the swap solely for the purpose of transferring it to an affiliate, or a branch, or other authorized form of establishment located in any EU member state or the United States, as provided in § __.1(h)(2)(ii);
  • The covered swap entity continues to treat the swap as a legacy swap after the swap is amended;
  • The transfer of the legacy swap is complete by the later of Jan. 1, 2022, or one year after the expiration of EU passporting rights; and
  • The amendments do not modify the payment amount calculation methods, extend the maturity date, or increase the total effective notional amount of the swap.

The statement notes that Fed and OCC staff “may amend, extend, terminate, or supersede this statement.”

OCC Bulletin 2020-108

Joint statement