Fed, OCC Issue Transition Period Guidance on Variation Margin

As the American Bankers Association Securities Association and other trade groups have urged, the Federal Reserve and the OCC today issued guidance on how examiners will review compliance with the requirement for when swap dealers and major swap participants must exchange variation margin for swaps not cleared through a central counterparty. While the requirement takes effect March 1, ABASA and other groups have sought a transition period to facilitate compliance.

The Fed and the OCC today said that priority in compliance efforts should be given “based on the size of and risk inherent in the credit and market risk exposures presented by each counterparty,” with full compliance by March 1 for counterparties “that present significant exposures.” For other counterparties, examiners will “focus on a covered swap entity’s good faith efforts to comply with the variation margin requirements of the final rule as soon as possible, and in no case later than Sept. 1, 2017.”

“The scope and scale of changes necessary for each covered swap entity to achieve effective compliance for each of its non-cleared swap transactions is recognized,” the Fed said. During initial examinations, examiners will evaluate covered entities’ compliance management systems and programs, governance processes and training programs.

Although the FDIC, Farm Credit Administration and Federal Housing Finance Agency also administer the final rule on variation margins, they supervise no entities affected by the guidance. They issued supportive statements. For more information, contact ABA’s Cecelia Calaby.