The CFTC Division of Market Oversight ("DMO") granted time-limited relief to an Irish affiliate of a UK-based financial institution to act as reporting counterparty for certain swaps with U.S. persons.
The relief was granted in response to a request from a firm that intends to transfer certain EU-related business from a UK entity registered as a swap dealer to an Irish affiliate that is not currently registered as a swap dealer. According to the facts set forth in the letter, the Irish affiliate does not intend to register as a swap dealer in the near future, but is preparing to register within 18 months following Brexit. DMO granted relief to the Irish affiliate and its U.S. person counterparties to permit the Irish affiliate to act as the "reporting counterparty" under CFTC Rule 45.8(e). The relief is time-limited and will expire on the earlier of the Irish affiliate's registration as a swap dealer or 18 months following Brexit.
The fact-specific nature of this inquiry seems unnecessary, as it makes it more difficult for non-addressees to rely on the relief in the letter. Other firms that may transfer business as a result of Brexit could easily face a similar issue but with slightly different facts.
More broadly, the inquiry presents questions about the policy behind certain of the requirements of the hierarchy in CFTC Rule 45.8. Why should parties not be able to more broadly agree as to who can be the reporting counterparty? While certain ground rules make sense (e.g., a swap dealer generally is required to report), if one party is willing to take on the regulatory responsibility versus another, why should the CFTC care?
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