Mandatory Contractual Stay Requirements for Qualified Financial Contracts

SIFMA AMG comments on the notice of proposed rulemaking promulgated by the Office of the Comptroller of the Currency regarding a proposed rule that would restrict the contractual provisions of qualified financial contracts entered into by certain banks supervised by the OCC that are part of systemically important U.S. banking organizations or systemically important foreign banking organizations. These restrictions extend to QFCs entered into by Covered Banks with counterparties that are not Covered Banks or other members of large banking organizations, which would include counterparties that are, among others, asset managers’ clients.

SIFMA AMG believes that the Proposed Rule’s objective of securing cross-border recognition of U.S. special resolution regimes should be achieved through Congressional action, not OCC rulemaking. Notwithstanding this view, AMG understands the OCC and other U.S. prudential regulators’ intention to move forward with its cross-border recognition objective, but recommends that the scope of the resulting requirements be narrowed to those strictly necessary to achieve that objective.

SIFMA AMG also strongly believes that the Proposed Rule’s separate objective of restricting cross-default rights upon an ordinary bankruptcy filing of an affiliate of a Covered Bank should not be pursued at all. However, if the OCC nonetheless moves forward with restricting cross-default rights, SIFMA AMG believes that the OCC should provide greater balance between the contractual restrictions required and the credit protections provided. The OCC should also make other improvements to tailor the final rule’s requirements. SIFMA AMG makes further recommendations below to clarify the scope of the Proposed Rule and to request phased-in implementation.

Given the importance of the contractual rights at issue for pension funds, mutual funds and other investment vehicles held by retail investors, among others, SIFMA AMG urges the OCC to give full consideration to counterparties’ interests and thus to promulgate a final rule whose requirements are limited to those strictly necessary to achieve the OCC’s goals while carefully protecting important counterparty interests.

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Mandatory Contractual Stay Requirements for Qualified Financial Contract