A staff letter from the Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) and Division of Data (DOD) has recommended a no-action position regarding enforcement actions being taken against entities failing to comply with certain swap data reporting obligations.
This move relates to swaps transitioning from USD LIBOR and other rates to risk-free rates and specifically concerns swaps transitioning under the ISDA LIBOR fallback provisions.
The no-action position is in respect to the commission’s 45.4 and 43.3 regulations. Part 43 sets forth real-time public reporting requirements – governing the public dissemination of swap pricing and transaction information, whilst Part 45 of the commission’s regulations covers both record-keeping obligations and the regulatory reporting of swap data.
Specifically, the letter states that no action will be taken against entities which “fail to timely report the change in the floating rate pursuant to the ISDA Fallbacks for an uncleared swap referencing any Impacted Rate” under regulation 45.4. This is only in cases where entities have made best efforts to report the change by applicable deadlines.
Additionally, under the no-action approach, no enforcements are to be taken in the event that an entity fails to report “the change in the floating rate pursuant to the ISDA Fallbacks for an uncleared swap referencing any Impacted Rate” under regulation 43.3.
Speaking in the letter, the Alternative Reference Rate Committee (ARRC) highlighted that market transparency and data integrity could potentially be harmed, explaining that “Part 43 reporting of changes that occur pursuant to the ISDA Fallbacks could lead to a significant number of messages being published by swap data repositories that do not serve a price discovery function.”
Libor rates for major currencies officially ended on 31 December 2021, beginning the industry transition to alternative risk-free rates. A month prior to the official cessation, the CFTC issued a request for information and comment related to its swap clearing requirement regulations to gain insight from participants on how aspects of the swap clearing requirement may be affected by the transition from IBORs to alternative reference rates.
The Financial Conduct Authority (FCA) confirmed back in July 2017 that it would no longer be supporting banks using Libor settings after 31 December 2021 following years of allegations that the benchmark had been manipulated.
However, although Libor settings for sterling, euro, Swiss franc, Japanese yen, and the one-week and two-month US dollar settings ceased in December 2021, the remaining US dollar settings are only set to cease today, 30 June.