The Office of the Comptroller of the Currency ("OCC") adopted a final rule concerning the exercise of the default rights of certain financial contracts that could interfere with the orderly resolution of systemically important financial firms (see previous coverage). The rule imposes "substantively identical requirements" to those recently imposed by the Board of Governors of the Federal Reserve System and the FDIC. Specifically, the rule will require certain banks and federal savings associations (collectively, "banks") to ensure that all covered qualified financial contracts ("QFCs"):
- contain a contractual stay-and-transfer provision analogous to the statutory stay-and-transfer provision imposed under Title II of the Dodd-Frank Act and in the Federal Deposit Insurance Act; and
- limit the exercise of default rights based on the insolvency of an affiliate of the covered bank.
The rule applies to banks with more than $700 billion in total assets, as well as certain subsidiaries of global systemically important bank holding companies and global systemically important foreign banking organizations.
The final rule will become effective on January 1, 2018. To ease the burden on affected banks, the OCC is implementing a phased-in compliance schedule. Compliance will be required:
- on the first day of the calendar quarter immediately following one year from the January 1, 2018 effective date for covered QFCs with other covered entities;
- 18 months from the effective date for QFCs with other financial counterparties; and
- two years from the effective date for QFCs with community banks and non-financial counterparties.
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