Fed Expands Reg EE Coverage

The Federal Reserve today finalized new categories of entities under the “financial institution” status under the FDIC Improvement Act’s netting provisions, first promulgated in Regulation EE in 1994. FDICIA was intended to provide certainty that netting contracts among financial institutions will be enforced, even in the event of insolvency. Beyond the statutory definition, which covered depository institutions, securities brokers or dealers and futures commission merchants, Reg EE provided both qualitative and quantitative tests for coverage.

Recognizing the dramatic evolution of financial markets and the regulatory architecture since 1994, the Fed definition of “financial institution” under Reg EE will now include: foreign banks without U.S. branches or agencies (those with U.S. branches or agencies were already included); swap dealers and security-based swap dealers; major swap participants and major security-based swap participants; nonbanks designated as systemically important by the Financial Stability Oversight Council; derivative clearing organizations and agencies; designated financial market utilities; bridge institutions; the regional Federal Reserve Banks; qualifying central counterparties; foreign central banks; and the Bank for International Settlements.

The final rule also clarifies certain aspects of the existing activities-based test in Reg EE.