Shearman & Sterling LLP | FinReg | US Commodity Futures Trading Commission Issues No-Action Letters to Ensure Continued Relief and Substituted Compliance for U.K. Firms Post-Brexit
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  • US Commodity Futures Trading Commission Issues No-Action Letters to Ensure Continued Relief and Substituted Compliance for U.K. Firms Post-Brexit
    The Commodity Futures Trading Commission has issued two no-action letters to ensure that existing regulatory relief and substituted compliance measures for EU firms will continue to apply to U.K. firms following the U.K.’s departure from the EU.  The CFTC said that the no-action letters will bring greater clarity to the market in light of Brexit and reflect the CFTC’s commitment to ensuring that Brexit will not create regulatory uncertainty in global derivatives markets.  The relief is intended to cover both “no-deal” and “soft” Brexit scenarios.  The relief would apply upon the departure of the U.K. (and would thus take effect at the end of the most recent extension of the departure date to October 31, 2019).

    CFTC Letter 19-08 extends to U.K. entities substituted compliance measures originally issued for EU entities.  These measures include comparability determinations for certain entity-level, transaction-level and uncleared margin requirements (the EU Comparability Determinations), along with an exemption for EU-authorized multilateral trading facilities and organised trading facilities from the CFTC’s swap execution facility registration requirements.

    If a “no-deal” Brexit scenario occurs, the CFTC is providing relief to CFTC-registered swap dealers from complying with CFTC regulations if such swap dealers comply with transposed U.K. laws and regulations in same manner and subject to the same conditions provided in the EU Comparability Determinations.  Such relief would expire on the earlier of (i) the effective date of any updated comparability determination issued on this subject by the CFTC for the U.K.; or (ii) six months following Brexit.

    In a “soft Brexit” scenario in which there is a transition period where EU law will continue to apply in the U.K., the relief allows a CFTC-registered swap dealer to continue to rely on the EU Comparability Determinations during the transition period.  This relief would expire the earlier of (i) the effective date of technical amendments, if any, that the CFTC may make to the EU Comparability Determinations in light of the transition; or (ii) the expiration of the transition period.

    In the event of either a no-deal or soft Brexit, the DMO will not recommend an enforcement action against (i) a U.K.-authorized MTF or OTF for failing to register as a SEF; or (ii) a counterparty subject to the trade execution requirement for executing a swap subject to such requirement on a U.K.-authorized MTF or OTF.  The DMO’s relief would be time-limited in a similar manner, depending on whether a no-deal or soft Brexit has occurred.

    CFTC Letter 19-09 extends to U.K. firms existing regulatory relief for EU firms.  Under the letter, U.K. firms are permitted to rely on the following relief if and when the U.K. leaves the EU:
    • Letter 12-70: Relief for Certain Swap Dealers, De Minimis Dealers, Agent Affiliates, and Associated Persons from Registration as an Introducing Broker under Section 4d or a Commodity Trading Advisor under Section 4m of the Commodity Exchange Act, and Interpretation that Certain Employees of De Minimis Dealers are not an Introducing Broker as defined in Section 1a(31) of the Commodity Exchange Act;
    • Letter 13-45: No-Action Relief for Registered Swap Dealers and Major Swap Participants from Certain Requirements under Subpart I of Part 23 of Commission Regulations in Connection with Uncleared Swaps Subject to Risk Mitigation Techniques under EMIR;
    • Letter 17-64: Extension of Time-Limited No-Action Relief from Certain Requirements of Part 45 and Part 46 of the Commission’s Regulations, for Certain Swap Dealers and Major Swap Participants Established under the Laws of Australia, Canada, the European Union, Japan or Switzerland;
    • Letter 17-66: No-Action Relief from Certain Provisions of the Outward-Facing Swaps Condition in the Inter-Affiliate Exemption from the Clearing Requirement; and
    • Letter 17-67: Extension of No-Action Relief from Commodity Exchange Act Section 2(h)(8) for Swaps Executed Between Certain Affiliated Entities that Are Not Exempt from Clearing Under Commission Regulation 50.52.5

    The relief will be effective immediately upon the U.K.’s departure from the EU. 

    View the CFTC’s press release.

    View CFTC Letter 19-08.

    View CFTC Letter 19-09.

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