CFTC Seeks Public Comment on Proposed Rule to Amend Capital and Financial Reporting Requirements of Swap Dealers and Major Swap Participants

The Commodity Futures Trading Commission (CFTC) has published a press release to inform of the launch of a consultation as regards revisions to the financial reporting obligations of Swap Dealers (SDs) and Major Swap Participants (MSPs). The Commission thereby primarily seeks to ease financial reporting burdens on SDs and MSPs and clarify existing obligations following the implementation of these requirements in 2020 and subsequent compliance issues SDs and MSPs faced.
Specifically, the Commission proposes to revise Statutory Instrument 17 CFR Part 23 relating to regulatory requirements of SDs and MSPs to, among others:
(1) ease the obligation for non-bank SDs in relation to the criteria to qualify for the use of the „tangible net worth“ approach to determine own fund requirements: Currently, non-bank SDs who would like to use this approach must predominantly engage in non-financial activities, meaning they may not derive more than 15% of their revenues (consolidated revenues at parent level) from financial activities or „hold financial assets in an amount that exceeds 15% of its respective total consolidated assets“. In an effort to ease requirements in this context, the Commission proposes to revise the definition of „predominantly engaged in non-financial activities“ to allow either one of these criteria to be applied at parent level, bringing more firms into the scope of the use of the „tangible net worth“ approach.
(2) revise the definition of „tangible net worth“ for purposes of facilitating the use of alternative account standards: Currently, firms may only use U.S. GAAP in this context to determine their „tangible net worth“. The CFTC now proposes to also allow the use of the International Financial Reporting Standards (IFRS) for this purpose.
(3) reduce the reporting frequency of SD positions and related exposures: Currently, SDs using the „tangible net worth“ capital approach must report their positions and related exposures on a monthly basis. The Commission now proposes to specify that such reports must be submitted at the same frequency as financial reports which is quarterly.
(4) ease requirements of non-U.S. bank SDs as regards the timing and submission of reports: Specifically, the Commission proposes to allow such SDs to file applicable financial reports within 90 days of the end of the financial reporting period and to allow the filing of their balance sheets and the statements of regulatory capital in the same format as such SDs use to report to their home jurisdiction regulator. However, the reports must be converted to use USD and must be in English.
(5) ease requirements of U.S. bank SDs as regards the timing and submission of their reports: In detail, the CFTC suggests to permit SDs to use the schedules provided by the FFIEC for reporting their balance sheets and regulatory capital schedules instead of the current forms provided by the CFTC. Also, SDs would be allowed to file these schedules at the same time as filed with their prudential regulators.
Furthermore, the Commission proposes to clarify that the use of subordinated debt to be counted towards the satisfaction of own fund requirements must be approved by either the Commission itself or the NFA (National Futures Association) and to mandate the confirmation of SDs and MSPs that there are no material differences between audited and unaudited financial reports published by firms (if such differences do not exists) so as to enhance reliance on either of the two reports for report users.
—
As the above summary only presents the key modifications proposed by the Commission, please refer to the original legal document for more detailed, comprehensive information.