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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551

DIVISION OF SUPERVISION

AND REGULATION

SR 20-29

December 11, 2020

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE 

BANK AND TO FINANCIAL INSTITUTIONS SUBJECT TO THE INITIAL AND 

VARIATION MARGIN REQUIREMENTS FOR NON-CLEARED SWAPS AND 

NON-CLEARED SECURITY-BASED SWAPS 

SUBJECT: Treatment of Certain Legacy Swaps Affected by Brexit and the Swap Margin 

Rule

Applicability: This letter applies to all institutions supervised by the Federal Reserve that are 

subject to Regulation KK.

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

Office of the Comptroller of the Currency (“OCC”) are issuing the attached joint statement to 

explain that the staff of each of the Federal Reserve and OCC will exercise discretion to not 

recommend taking enforcement action if a covered swap entity is a party to a legacy swap that 

was amended under certain conditions, consistent with the intent of § 237.2(h)(2) of Regulation 

KK (“Swap Margin Rule”). The no action statement would allow legacy swaps – those entered 

into prior to the firm’s compliance date with the Swap Margin Rule – to maintain grandfathered 

treatment if transferred out of the United Kingdom to the EU or the United States, subject to 

specific conditions and time limitations.

In July 2020, the Federal Reserve, OCC, Federal Deposit Insurance Corporation, Farm 

Credit Administration, and Federal Housing Finance Agency (together “agencies”), amended the 

Swap Margin Rule to assist covered swap entities as they prepared for the event commonly 

described as “Brexit” (“Brexit amendment”).

1 The Brexit amendment was intended to address a 

covered swap entity’s ability to service its cross-border clients in the event that the United 

Kingdom (UK) withdrew from the European Union (EU) without a Withdrawal Agreement 

pursuant to Article 50(2) of the Treaty on European Union. In the event that no Withdrawal 

Agreement was ratified between the UK and EU, the Brexit amendment provides that any legacy 

swap that is currently exempt from the Swap Margin Rule would not become subject to margin 

1

 See 84 FR 9940 (March 19, 2019). The agencies subsequently finalized the Brexit IFR. See 85 FR 39754 

(August 31, 2020).
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requirements by virtue of being modified solely for the purpose of transferring such swap from a 

UK entity to an affiliate located in the EU or the United States. The relief does not apply if the 

UK and EU entered into a Withdrawal Agreement because the agencies formulated the Brexit 

amendment on the premise that a Withdrawal Agreement would preserve “passporting rights” 

between the UK and EU.

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 

December 31, 2020. 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. Interested parties have represented to the 

agencies 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. 

The Federal Reserve and the OCC believe it is appropriate to provide certainty to covered 

swap entities currently operating in the affected jurisdictions as to the legacy status of transferred 

swaps in light of the uncertainty regarding whether the 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 conditions specified 

in the joint statement.

Reserve Banks are asked to distribute this letter to the supervised organizations in their 

districts that are subject to Regulation KK and to appropriate supervisory staff. In addition, 

institutions may send questions via the Board’s public website.2

Michael S. Gibson

Director

Division of

Supervision and Regulation

Attachments: 

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

Margin Rule

2 See http://www.federalreserve.gov/apps/contactus/feedback.aspx.
1

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

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 entities1 preparing for the event commonly 

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

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

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

without a Withdrawal Agreement pursuant to Article 50(2) of the 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 of being 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 relief in the Brexit IFR does not apply if the 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.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 

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).

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

FR 39754 (August 31, 2020).

3 Passporting rights mean the EU’s system of cross-border authorizations to engage in regulated 

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

establishment as their base of operations to provide financial services to customers across the 

EU.
2

December 31, 2020.

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. 

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/.