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CFTC issues no-action letter to provide relief to foreign-owned U.S. banks

180px-National_Bank_OamaruThe CFTC’s Division of Swap Dealer and Intermediary Oversight issued a no-action letter that provides extended relief to foreign-owned U.S. banks on Monday.

U.S. banks owned by foreign swaps affiliates requested that the CFTC allow them to determine whether they meet the de minimis exception to swap dealer registration requirements without considering the swap activity of their foreign owner.

The Dodd-Frank Act mandated that the CFTC exempt any entity “that engages in a de minimis quantity” of swap dealing “in connection with transactions with or on behalf of customers” from designation as a swap dealer and associated registration requirements.

“The foreign-owned U.S. banks represent that they engage in an amount of swap activity that would entitle them to rely on the de minimis exception, and that they would qualify for the exception if only they could calculate their swap positions without including the swap positions of their foreign affiliates that will timely register as swap dealers,” the CFTC letter said.

The banks requesting the relief maintain that they are subject to the de minimis exception based on the strength of their respective holding companies and the banks’ stand-alone financial data, the banks’ separate legal existence, and oversight by banking regulators and the bank’s independent swaps operations from the operations of their foreign owners.

The DSIO said in the letter that it would not recommend that the CFTC pursue enforcement action against a foreign-owned U.S. bank that fails to consider its owner’s swap positions as long as the bank is state or nationally chartered, maintains its separate existence from its foreign owner, its swap obligations are not guaranteed by foreign affiliates, the U.S.-based operation and foreign operation serve different parts of the U.S. swaps market, and the U.S. bank cannot rely on its foreign owner for operational servicing of its swaps division.

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