CFTC Issues No-Action Relief for Certain U.S. Banks Wholly Owned by Non-U.S. SDs, for Purposes of De Minimis Exemption

The CFTC’s Division of Swap Dealer and Intermediary Oversight (”DSIO”) issued a no-action letter that provides relief for certain U.S. banks that are wholly owned by non-U.S. banks that are themself CFTC-registered swap dealers.  The no-action letter allows a U.S. bank that is wholly owned by such a foreign entity to ignore the swap dealing activities of its foreign affiliates, or the U.S. branches of such affiliates, when determining whether such U.S. bank satisfies the de minimis exception to the swap dealer definition and registration requirements.

Conditions:  The letter is subject to VERY extensive conditions, which are PARTIALLY set out below:

  1. The U.S. bank must be nationally chartered.
  2. Although the U.S. bank must be ultimately wholly owned by a foreign entity, it must have an intermediate U.S. corporate owner that (i)  is an FHC and (ii) files financial statements with the SEC. 
  3. The U.S. bank and its foreign affiliates must serve “different aspects” of the U.S. swaps market, although customer overlap is permitted.  
  4. The U.S. bank cannot rely on its foreign affiliates for “operational servicing.”

NOTE: In order to rely on the relief provided in the no-action letter, a bank must file a claim with DSIO.

Lofchie Comment:  I don’t understand why every CFTC no-action letter  must be subject to so many conditions.  Why does it matter whether the relevant U.S. bank is nationally chartered or state chartered?  Why does it matter whether the U.S. bank and the non-U.S. bank serve the same “aspects” of the swaps market (and what does that even mean?)?  All of these conditions inevitably raise difficult legal questions because there is no obvious policy basis for them; e.g., what does it mean to “rely” on an affiliate for “operational services” and what are “core operational capabilities”?  I just don’t understand what policy issues are at stake here that make these conditions necessary to the grant of relief.

See: CFTC Letter 12-61 PDF Image: Commission Regulation 1.3(ggg)(4); No-Action.

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