Memo #
28877

Draft ICI Comment Letter on Proposed Qualified Financial Contract Recordkeeping Rules That Would Apply to SIFIs and Large RICs
| Print

[28877]

March 31, 2015

TO: SEC RULES COMMITTEE No. 9-15 RE: DRAFT ICI COMMENT LETTER ON PROPOSED QUALIFIED FINANCIAL CONTRACT RECORDKEEPING RULES THAT WOULD APPLY TO SIFIs AND LARGE RICs

 

As previously indicated, the Secretary of the Treasury (“Secretary”), in consultation with the Federal Deposit Insurance Corporation (“FDIC”), has proposed rules to implement the qualified financial contract (“QFC”) recordkeeping requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. [1]  The requirements are intended to assist the FDIC with exercising it rights and fulfilling its obligations under Title II (Orderly Liquidation Authority) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). [2]

The Proposed Rules would apply to any “records entity,” defined to include a financial company that is a party to an open QFC, or guarantees, supports, or is linked to an open QFC and meets one of the following criteria: (1) is determined pursuant to Title I of the Dodd-Frank Act to be an entity that could pose a threat to the financial stability of the United States (“SIFI”); (2) is designated under Title VIII of the Dodd-Frank Act as a financial market utility that is, or is likely to become, systemically important; or (3) has total assets equal to or greater than $50 billion. [3]  This third prong would capture any registered investment company that has at least $50 billion in total assets.  In addition, a records entity would include a party to an open QFC or that guarantees, supports, or is linked to an open QFC of an affiliate and is a member of a corporate group within which at least one affiliate [4] meets one of the three criteria.

Attached for your review is ICI’s draft comment letter on the Proposed Rules.  Comments are due to the Secretary by April 7, 2015.  Please provide any comments on the draft letter to Frances Stadler (frances@ici.org) or Rachel Graham (rgraham@ici.org) by the close of business on Friday, April 3rd.

The draft letter addresses the following points:

  • Registered investment companies should be exempt from any final rule because they are extremely unlikely to be resolved through the Orderly Liquidation Authority. 
  • Any final rule should not use a $50 billion asset threshold as the sole criterion for defining certain “records entities” as this threshold is inconsistent with Section 210 of the Dodd-Frank Act, pursuant to which the Secretary is conducting this rulemaking. 
  • The recordkeeping requirements of the Proposed Rule are overly burdensome, and recordkeeping requirements in any final rule should be no broader than similar requirements under FDIC rules applicable to banks in “troubled condition.”
  • Primary financial regulatory agencies should have the power to grant exemptions (or at a minimum, recommend exemptions to the Secretary, which the Secretary presumptively will grant), as each primary financial regulatory agency has the most complete understanding of entities under its jurisdiction.

 

Frances M. Stadler
Associate General Counsel

Rachel H. Graham
Associate General Counsel

Attachment

endnotes

[1] See ICI Memorandum No. 28687, dated January 26, 2015, for a more detailed summary of the Proposed Rules.

[2] Title II establishes a mechanism for orderly resolution of a financial company whose failure and resolution under applicable federal or state law would have serious adverse effects on U.S. financial stability.  Under Title II, the FDIC has receivership authority over financial companies in default or in danger of default for which a determination has been made by the Secretary to seek the FDIC’s appointment as receiver.

[3] Total assets would be determined based on the most recent year-end consolidated statements of financial condition filed with a primary financial regulatory agency.   

[4] An “affiliate” is defined by reference to the Bank Holding Company Act as any company that controls, is controlled by, or is under common control with another company.