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Dodd-Frank
Compliance

Dodd-Frank Compliance


Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), signed into law on July 21, 2010, mandated sweeping changes in the regulation of the US over-the-counter (OTC) derivatives market. Pursuant to the Dodd-Frank Act, the Commodity Futures Trading Commission (CFTC) has jurisdiction to regulate the over-the-counter derivatives markets. Dodd-Frank requirements vary depending upon the transaction and the provider.

Providers registered with the CFTC as a Swap Dealer have increased Dodd-Frank Compliance requirements versus those of providers registered as Insured Depository Institutions. Charlie Jacobs, leads Kensington’s Dodd-Frank Compliance Advisory practice and works with clients and their counsel to understand and execute any required Dodd-Frank compliance in connection with the execution, amendment and/or termination of derivative transactions.

When is
Dodd-Frank
Compliance
Needed?

  • Before executing a new interest rate or commodity derivative, foreign exchange, other derivative, or other covered transactions
  • Before amending an existing transaction
  • Credit Extensions. Many financial institutions will require Dodd-Frank compliance in respect to an interest rate derivative in order to negotiate and/or extend an underlying loan facility, credit agreement or commitment (e.g., the extension of a put date on a privately placed bond).

Basic components of Dodd-Frank Compliance with a Swap Dealer


  • CFTC regulations require a counterparty to a derivative, such as a fixed-payer interest rate swap or an interest rate cap, to obtain a Legal Entity Identifier (LEI), also known as a Global Markets Entity Identifier (GMEI)
  • Execution of the ISDA August 2012 Dodd-Frank Protocol (1.0) or an analogous bilateral agreement and questionnaire responses directly with a Swap Dealer to address topics including, but not limited to, External Business Conduct Standards, Safe Harbors, Exchange of Data and Reporting Requirements. In the case of adherence to the 1.0 Dodd-Frank Protocol also requires a Markit.com login to match counterparties to relevant Swap Dealers and exchange questionnaire responses.
  • Execution of the ISDA March 2013 Dodd-Frank Protocol (2.0) or an analogous bilateral agreement and questionnaire responses directly with a Swap Dealer to address topics including, but not limited to, Swap Trading Relationship Documentation, Risk Valuation Dispute Resolution, Portfolio Reconciliation, the End-User Exception from Clearing and the ISDA March 2013 DF Protocol Master Agreement. In the case of adherence to the 2.0 Dodd-Frank Protocol also requires a Markit.com login to match counterparties to relevant Swap Dealers and exchange questionnaire responses.
  • If your swap provider is a foreign entity, additional regulatory compliance documentation may be required (e.g., EMIR Regulatory Compliance, Canadian Representation Letter).

Basic components of Dodd-Frank Compliance with an Insured Depository Institution (IDI):

  • CFTC regulations require a counterparty to a derivative, such as a fixed-payer interest rate swap or an interest rate cap, to obtain a Legal Entity Identifier (LEI), also known as a Global Markets Entity Identifier (GMEI)
  • Eligible Contract Participant Status Representation. A derivative user must provide their IDI provider with a written representation of its Eligible Contract Participant Status. This is typically a one page document. (Note: This representation is part of the 1.0 Questionnaire process with a Swap Dealer).

Many IDI’s will have a stand-alone Risk Disclosure and Acknowledgement that they will require clients to execute prior to entering into a derivative transaction, outlining some of the features and risks of the proposed transaction.

Contact Charlie Jacobs for additional information on Dodd-Frank compliance and IRMA/QIR services. Kensington provides additional support services including valuation & monitoring, reinvestments, and derivative education.