U.S. regulators continue their efforts to limit the fallout from any future Global Systemically Important Bank (GSIB) failure by strengthening the American financial system.
One of the central pillars in the attempts to bolster the resiliency of financial markets is to provide regulators with the tools to wind down GSIBs while minimizing disruption to financial markets and the broader economy.
As part of these efforts, new stay rules are being implemented in the US that require counterparties to change agreements known as qualified financial contracts (QFCs) to temporarily waive – or stay – certain rights with failing GSIBs.
Prohibiting counterparties from exercising certain default and transfer restriction rights during the stay period will assist regulators in resolving GSIBs in an orderly manner.
All in-scope QFCs must comply with the new stay rules beginning January 1, 2019. Counterparties that have not altered their QFCs with BNY Mellon by their relevant compliance date may encounter disruption to business activities.
The definition of QFC is very broad, encompassing OTC and listed derivatives, swaps, FX transactions, physical commodity transactions, repo, stock loans, prime brokerage contracts as well as a wide variety of securities contracts, including those that provide for extensions of credit in the clearance or settlement of securities transactions (such as custody agreements).1
As such, the exercise to address QFC compliance with the U.S. stay rules will be wide-reaching and will likely impact many BNY Mellon clients across all of our lines of business.
This is a question without a simple answer. We encourage you to visit the ISDA 2018 U.S. Resolution Stay Protocol to learn about the U.S. stay rules and the potential impact on your QFCs.
At BNY Mellon, we are currently working through a comprehensive internal exercise to precisely identify which contracts are in-scope QFCs and will need to be brought into compliance with the new rules.
We anticipate completing our review of outstanding QFCs in Q4. Thereafter, if your firm has in-scope QFCs facing BNY Mellon, we will contact you regarding the need to change your QFCs with us.
If you are impacted by the U.S. stay rules, you can bring your QFCs into compliance in two ways.
The simplest is to adhere to the ISDA 2018 U.S. Resolution Stay Protocol (U.S. stay protocol).
If the U.S. stay protocol is not used, parties can enter into bilateral amendments to in-scope QFCs that follow standard industry conventions to comply with the U.S. stay rules.
Below you can find some educational resources to get up to speed on the U.S. stay rules, on what QFCs are and to equip you for complying with the rules:
Frequently Asked Questions (PDF 108 KB): A comprehensive list of FAQs that break down the stay rules and all the related processes and procedures.
Glossary of Terms (PDF 99 KB): The rules contain a number of concepts pertaining to resolving failing financial institutions that may not be familiar to you. All these concepts are explained simply here.
ISDA 2018 U.S. Resolution Stay Protocol: Click here for more information on what the protocol is and how adhering to it can bring you swiftly and easily into compliance.
Educational Webinars: We will be holding educational webinars on the U.S stay rules for all BNY Mellon clients. Dates to follow.
We will be in touch with more details on the precise parameters of the QFC remediation process.
Please Contact Us directly with any questions regarding the U.S. stay rules or QFCs.
1. BNY Mellon continues to evaluate the impact of the new regulations for custody clients (and their in-scope QFCs) and the necessary steps for them to achieve compliance with the regulation.
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