Board of Governors of the Federal Reserve System

Office of the Comptroller of the Currency

Statement Regarding Treatment of Certain Legacy Swaps Affected by Brexit and the Swap

Margin Rule

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The Board of Governors of the Federal Reserve System (“Federal Reserve”), the Office

of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation

(“FDIC”), the Farm Credit Administration (“FCA”), and the Federal Housing Finance Agency

(“FHFA”) (collectively, the “agencies”) issued an interim final rule on March 19, 2019, to

amend the Swap Margin Rule to assist covered swap entities [Footnote 1

- A “covered swap entity” is a Commodity Futures Trading Commission-registered swap dealer

or major swap participant for which one of the agencies is the prudential regulator. 12 CFR part

45 (OCC); 12 CFR part 237 (Board); 12 CFR part 349 (FDIC); 12 CFR part 624 (FCA); 12 CFR 

part 1221 (FHFA); see also Final Rule, Margin and Capital Requirements for Covered Swap

Entities, 80 FR 74840 (November 30, 2015). End of Footnote 1.]

preparing for the event commonly

described as “Brexit” (“Brexit IFR”). [Footnote 2

- See 84 FR 9940 (March 19, 2019). The agencies subsequently finalized the Brexit IFR. See 85

FR 39754 (August 31, 2020). End of Footnote 2.]

The Brexit IFR was intended to address a covered swap entity's ability to service its

cross-border clients ifthe United Kingdom (UK) withdrew from the European Union (EU)

without a Withdrawal Agreement pursuant to Article 50(2) ofthe Treaty on European Union. In

the event that no Withdrawal Agreement was ratified between the UK and EU, the Brexit IFR

provides that any legacy swap that is currently exempt from the Swap Margin Rule would not

become subject to margin requirements by virtue ofbeing amended solely for the purpose of

transferring such swap from a UK entity to an affiliate located in the EU or the United States.

The reliefin the Brexit IFR does not apply ifthe UK and EU enter into a Withdrawal Agreement

because the agencies formulated the Brexit IFR on the premise that a Withdrawal Agreement

would preserve “passporting rights” between the UK and EU. [Footnote 3

- Passporting rights mean the EU's system ofcross-border authorizations to engage in regulated

financial activities. For example, passporting rights have previously enabled firms to use a UK 

establishment as their base ofoperations to provide financial services to customers across the

EU. End of Footnote 3.]

A Withdrawal Agreement between the UK and EU was ratified in January 2020 and

includes a transition period (the “Brexit Transition Period”) that, absent an extension, expires on
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December 31, 2020. [Footnote 4

- See European Council Press Release “Brexit: Council adopts decision to conclude the

withdrawal agreement” (January 30, 2020), available at

https://www.consilium.europa.eu/en/press/press-releases/2020/01/30/brexit-council-adoptsdecision-to-conclude-the-withdrawal-agreement/. End of Footnote 4.]

The EU continues to recognize UK participation in the EU single market

on an interim basis during the Brexit Transition Period. The Withdrawal Agreement does not

address the continuation of passporting rights for UK entities to provide financial services in the

EU at the expiration of the Brexit Transition Period. The agencies understand that the UK and

EU are negotiating a free trade agreement that may not include passporting rights for UK

entities. The absence of a free trade agreement that addresses passporting rights would result in

UK entities losing the ability to continue servicing their EU clients when the Brexit Transition

Period expires.

Covered swap entities subject to the Federal Reserve's and OCC's swap margin rules

currently operate in the affected jurisdictions. The Federal Reserve and the OCC believe it is

appropriate to provide certainty to covered swap entities regarding the status of their legacy

swaps, consistent with the intent of the Brexit IFR, in light of the uncertainty regarding whether

the UK and EU will agree to a free trade agreement granting UK companies passporting rights

related to financial services. Therefore, Federal Reserve and OCC staff would not recommend

that their respective agencies take action if a covered swap entity is a party to a legacy swap that

was amended under the following conditions:

(i) 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;

(ii) 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);

(iii) The covered swap entity continues to treat the swap as a legacy swap after the

swap is amended;

(iv) The transfer of the legacy swap is complete by the later of January 1, 2022, or one

year after the expiration of EU passporting rights; and

(v) The amendments do not modify the payment amount calculation methods, extend

the maturity date, or increase the total effective notional amount of the swap.

Federal Reserve and OCC staff may amend, extend, terminate, or supersede this

statement.