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Prudential Regulators do the prudent thing

US’ Prudential Regulators (FDIC, Federal Reserve, FDIC, OCC, FHFA and FCA) have become the latest to issue a proposal for amending Swap Margin Requirements.

The CFTC was the first regulator to adopt the BCBS’ mitigation recommendations, staggering the ‘Big Bang’ Phase 5 and 6 thresholds, so it was only a matter of time for the Prudential Regulators to follow suit. The specifics of the mitigation is still being discussed – the comment period is due to close on December 9 2019 – but they are likely to make a pitch perfect contribution to BCBS/IOSCO’s echo chamber. By introducing phase 5 and extension phase 6 to 2021, the proposed rule will permit material amendments to legacy swaps in respect of IBOR transition, extend the compliance date for IM requirements and clarify the time that trading documentation must be gathered.

Given that the changes are coming at a time when other national regulators are taking similar steps, the decision will help consolidate the approach to tackle with the discontinuation of LIBOR. Although entirely predictable, the Prudential Regulators (eventual) confirmation is helpful.  The market still awaits the EU and Japan’s announcements of their compliance with the recommendations; but in the meantime firms are sensibly assuming that neither of these major jurisdictions will bring any surprises.

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