MFA Submits Letter to OCC on Proposed Contractual Stays for Qualified Financial Contracts
October 18, 2016
On October 18, MFA submitted a comment letter to the MFA submitted a comment letter to the Office of the Comptroller of the Currency, Treasury (OCC) on its proposed rule on “Mandatory Contractual Stay Requirements for Qualified Financial Contracts”.
In our letter, MFA expressed our strong concerns with the content of the proposed rules, and the restrictions contained therein on the ability of end-users and other market participants to exercise certain default rights under qualified financial contracts (QFCs) during the failure of a covered bank. In particular, MFA reiterated its strong objections to the U.S. banking regulators’ contemplated initiatives to restrict end-users’ cross-default rights as well as the broader Financial Stability Board initiative on cross-border recognition of resolution actions. MFA also attached its 2015 white paper setting forth our views on these initiatives, and urged the OCC to defer proceeding with the proposed rules pending further study and assessment of the costs and benefits as well as the market impact of the proposed rules. In addition, understanding that, notwithstanding MFA’s objections, OCC may determine to proceed with the proposed rules, MFA provided substantive comments on the proposed rules, in which, among other comments:
- MFA urged OCC to eliminate proposed restrictions on end-users’ exercise of their default rights during U.S. and foreign insolvency proceedings;
- MFA urged OCC to expand the proposed safe harbor for compliance with the proposed rules to apply not only to the ISDA 2015 Universal Dealer Protocol, but also to the ISDA Resolution Stay Jurisdictional Modular Protocol, including the creditor protections contained therein and the mechanics that allow jurisdiction-by-jurisdiction and dealer-by-dealer adherence; and
- MFA strongly recommended that OCC eliminate the retroactive application of the proposed rules, and apply the rules solely prospectively, to align the proposed rules with the final rules of the U.K. Prudential Regulation Authority, and the statutory requirements adopted in Germany.