SUPPLEMENTARY INFORMATION:

I. Background

In November 2015, the Agencies jointly adopted a final rule establishing initial margin and variation margin requirements for dealers and major participants in non-cleared swaps and non-cleared security-based swaps, such entities defined in the joint final rule as “covered swap entities.” The implementation of both initial and variation margin requirements started on September 1, 2016. With respect to initial margin requirements, the requirements in the Swap Margin Rule were implemented in six phases from September 1, 2016, through September 1, 2020, depending on the size of the covered swap entity's portfolio of non-cleared swaps and the counterparty's portfolio of non-cleared swaps. Variation margin requirements for all covered swap entities and counterparties were completely phased in by March 1, 2017. This schedule was consistent with BCBS/IOSCO framework when the Swap Margin Rule was adopted in 2015.

By joint final rule, the Agencies, among other things, amended the compliance schedule to add a sixth phase of compliance for certain smaller entities that were previously subject to the “phase five” compliance deadline.

II. Description of the Interim Final Rule and Request for Comment

The containment measures adopted in response to recent COVID-19 public health concerns have slowed economic activity in many countries, including the United States. Financial conditions have tightened markedly, with extreme volatility in financial markets. Businesses in all fields of operation, including the financial sector, have experienced a reduction in the capacity of their operations, as local governments have issued stay-at-home orders, requiring businesses to shift to remote operations, with employees having to conduct many critical functions from their homes. Under these circumstances and taking account of the high market volatility resulting from the pandemic, market participants have diverted resources to ongoing business continuity.

The Basel Committee on Banking Supervision and International Organization of Securities Commissions (BCBS/IOSCO) extended the implementation schedule for the initial margin requirements for non-cleared derivatives for an additional year.^[1] BCBS/IOSCO stated that the extension would provide additional operational capacity for firms to respond to the immediate impact of COVID-19, allowing firms to diligently comply with upcoming initial margin deadlines by the revised deadlines.

The agencies are issuing this interim final rule to provide covered swap entities additional time to comply with the Swap Margin Rule's phases 5 and 6 initial margin implementation deadlines. The interim final rule delays the effective date for phase 5 from September 1, 2020 to September 1, 2021 and, for phase 6, from September 1, 2021 to September 1, 2022. In issuing this interim final rule, the Agencies' objective is to give covered swap entities additional time to meet the requirements under the rule so as not to divert resources from ongoing efforts to address exigent circumstances caused by COVID-19. In addition, the Agencies believe that an extension of one year for both phase 5 and phase 6 is necessary ( printed page 39467) to give covered swap entities sufficient time to address both deadlines. As explained in Agencies' most recent notice of proposed rulemaking addressing the Swap Margin Rule, the industry faced operational and other difficulties in preparing for the exchange of initial margin with a large number of relatively small counterparties by September 1, 2020; ^[2] therefore, the Agencies amended the compliance schedule to add a sixth phase for certain smaller entities. Consistent with the policy goals explained in the recent proposed rule, a one year extension for both phases will allow covered swap entities to prioritize certain larger counterparties and avoid operational challenges they would encounter if it was necessary to prepare for the exchange of initial margin with a large number of relatively small counterparties on the same compliance date in 2021.

While this interim final rule provides covered swap entities additional time to comply with the Swap Margin Rule's phases 5 and 6 initial margin implementation deadlines by delaying the effective date for phase 5 from September 1, 2020 to September 1, 2021 and, for Phase 6, from September 1, 2021 to September 1, 2022, covered swap entities and their counterparties may voluntarily start the compliance with the Swap Margin Rule prior to the new mandatory compliance dates in accordance with the original schedule or other mutually agreed date.

The Agencies request comment on all aspects of the interim final rule.

III. Administrative Law Matters

A. Administrative Procedure Act

The Agencies are issuing the interim final rule without prior notice and the opportunity for public comment. Pursuant to section 553(b)(B) of the Administrative Procedure Act (APA), general notice and the opportunity for public comment are not required with respect to a rulemaking when an “agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” ^[3]

As discussed above, the interim final rule provides covered swap entities additional time to meet their obligations under the swap margin rule in light of the exigent circumstances caused by COVID-19. The Agencies believe that the public interest is best served by making the interim final rule effective as soon as possible given the scale, scope, and pace of the pandemic's disruptive nature. The Agencies believe that issuing the interim final rule will facilitate the industry's efforts to respond to COVID-19's impact. In addition, the Agencies believe that providing a notice and comment period prior to issuance of the interim final rule is impracticable given the need for relief immediately. For these reasons, the Agencies find there is good cause consistent with the public interest to issue the interim final rule without advance notice and comment.

As noted above, the Interim Final Rule is amending provisions that are being adopted by the Final Rule that also published in today's edition of the Federal Register . The Final Rule will take effect August 31, 2020. So that this Interim Final Rule takes effect in its proper sequence for purposes of allowing the Federal Register to accurately update the applicable sections of the Code of Federal Regulations being affected by the Final Rule and this Interim Final Rule, the Interim Final Rule an effective date of one day later than the effective date of the Final Rule, i.e., September 1, 2020.

The agencies have found good cause that, despite such a delayed effective date, general notice and an opportunity for public comment are impracticable, unnecessary, or contrary to the public interest. Compliance with the new regulatory regime for phase 5 on September 1, 2020 and phase 6 on September 1, 2021 involves significant planning by industry participants for months, and in some cases years, prior to the requirements taking effect. The agencies believe that, in this instance, publication of the Interim Final Rule in the Federal Register will provide industry participants critical information that will allow them to revise their implementation schedules immediately in light of the issuance of an interim final rule from the agencies that the phase 5 and phase 6 compliance dates will be delayed for an additional year. But for the need to properly sequence the Final Rule's and Interim Final Rule's effective dates and the 60-day delay in the Final Rule's effective date in order to comply with the Congressional Review Act, the agencies would have set the effective date for this Interim Final Rule upon publication in the Federal Register . Nevertheless, the agencies have requested comment on the Interim Final Rule and will carefully consider any comments that are received.

In the event that Federal Register publication takes place after July 2, 2020, the effective date of the Interim Final Rule will be after September 1, 2020. In this instance, the agencies do not expect that covered swap entities would comply with the phase 5 compliance date, as amended by the Final Rule, for the few days before the Interim Final Rule's effective date occurs.

B. Solicitation of Comments on Use of Plain Language

Section 722 of the Gramm-Leach-Bliley Act requires the Federal banking Agencies to use plain language in all proposed and final rules published after January 1, 2000. The Agencies have sought to present the interim final rule in a simple and straightforward manner. The Agencies invite comments on whether there are additional steps they could take to make the rule easier to understand. For example:

• Have we organized the material to suit your needs? If not, how could this material be better organized?
• Are the requirements in the regulation clearly stated? If not, how could the regulation be more clearly stated?
• Does the regulation contain language or jargon that is not clear? If so, which language requires clarification?
• Would a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand? If so, what changes to the format would make the regulation easier to understand?
• What else could we do to make the regulation easier to understand?

C. Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act of 1995 ^[4] (PRA), the Agencies may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The Agencies have reviewed this interim final rule and determined that it would not introduce any new or revise any collection of information pursuant to the PRA. Therefore, no submissions will be made to OMB for review.

D. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) ^[5] requires an agency to consider whether the rules it proposes will have a significant economic impact on a ( printed page 39468) substantial number of small entities.^[6] The RFA applies only to rules for which an agency publishes a general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed previously, consistent with section 553(b)(B) of the APA, the Agencies have determined for good cause that general notice and opportunity for public comment is unnecessary, and therefore the Agencies are not issuing a notice of proposed rulemaking. Accordingly, the Agencies have concluded that the RFA's requirements relating to initial and final regulatory flexibility analysis do not apply.

Nevertheless, the agencies seek comment on whether, and the extent to which, the interim final rule would affect a significant number of small entities.

E. Unfunded Mandates Reform Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded Mandates Act), 2 U.S.C. 1532, requires the OCC to prepare a budgetary impact statement before promulgating any final rule for which a general notice of proposed rulemaking was published. As discussed above, the OCC has determined for good cause that the publication of a general notice of proposed rulemaking is impracticable and contrary to the public interest. Accordingly, this interim final rule is not subject to section 202 of the Unfunded Mandates Act.

F. Riegle Community Development and Regulatory Improvement Act of 1994

The Riegle Community Development and Regulatory Improvement Act of 1994 (RCDRIA) requires that each Federal banking agency, in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions (IDIs), consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. In addition, new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on IDIs generally must take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form.^[7] Each Federal banking agency has determined that the interim final rule would not impose additional reporting, disclosure, or other requirements; therefore the requirements of the RCDRIA do not apply.

G. Congressional Review Act

For purposes of Congressional Review Act (CRA), OMB makes a determination as to whether a final rule constitutes a “major” rule.^[8] If a rule is deemed a “major rule” by the OMB, the CRA generally provides that the rule may not take effect until at least 60 days following its publication.^[9]

The CRA defines a “major rule” as any rule that the Administrator of the Office of Information and Regulatory Affairs of the OMB finds has resulted in or is likely to result in (1) an annual effect on the economy of $100,000,000 or more; (2) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies or geographic regions, or (3) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets.^[10]

As required by the CRA, the Agencies will submit the interim final rule and other appropriate reports to Congress and the Government Accountability Office for review.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

For the reasons set forth in the common preamble and under the authority of 12 U.S.C. 93a and 5412(b)(2)(B), the Office of the Comptroller of the Currency amends chapter I of Title 12, Code of Federal Regulations, as follows:

1. The authority citation for part 45 continues to read as follows:

Authority: 7 U.S.C. 6s(e), 12 U.S.C. 1 et seq.,12 U.S.C. 93a, 161, 481, 1818, 3907, 3909, 5412(b)(2)(B), and 15 U.S.C. 78o-10(e).

2. Section 45.1 is amended by revising paragraphs (e)(6) and (7) to read as follows:

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

12 CFR Chapter II

Authority and Issuance

For the reasons set forth in the preamble, the Board of Governors of the Federal Reserve System amends 12 CFR part 237 to read as follows:

3. The authority citation for part 237 continues to read as follows:

Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 15 U.S.C. 8305, 12 U.S.C. 221 et seq.,12 U.S.C. 343-350, 12 U.S.C. 1818, 12 U.S.C. 1841 et seq.,12 U.S.C. 3101 et seq., and 12 U.S.C. 1461 et seq.

4. Revise the heading to part 237 to read as set forth above.

5. Section 237.1 is amended by revising paragraphs (e)(6) and (7) to read as follows:

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

Authority and Issuance

For the reasons set forth in the Supplementary Information section, the Federal Deposit Insurance Corporation amends 12 CFR Chapter III as follows:

6. The authority citation for subpart A of part 349 continues to read as follows:

Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), and 12 U.S.C. 1818 and 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1813(q), 1818, 1819, and 3108.

7. Section 349.1 is amended by revising paragraphs (e)(6) and (7) to read as follows:

FARM CREDIT ADMINISTRATION

12 CFR Chapter VI

Authority and Issuance

For the reasons set forth in the preamble, the Farm Credit Administration amends chapter VI of title 12, Code of Federal Regulations, as follows:

8. The authority citation for part 624 continues to read as follows:

Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 2154, 12 U.S.C. 2243, 12 U.S.C. 2252, 12 U.S.C. 2279bb-1.

9. Section 624.1 is amended by revising paragraphs (e)(6) and (7) to read as follows:

( printed page 39470)

FEDERAL HOUSING FINANCE AGENCY

12 CFR Chapter XII

Authority and Issuance

For the reasons set forth in the preamble, the Federal Housing Finance Agency amends chapter XII of title 12, Code of Federal Regulations, as follows:

10. The authority citation for part 1221 continues to read as follows:

Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 4513, and 12 U.S.C. 4526(a).

11. Section 1221.1 is amended by revising paragraphs (e)(6) and (7) to read as follows:

85 FR 39464