Services

Regulatory Compliance

Regulatory Compliance

The Wall Street Reform and Consumer Protection Act, commonly referred as the Dodd-Frank Act (DF), has transformed the regulatory landscape of interest rate derivatives. Pensford helps borrowers manage the regulatory burden by staying in front of this ever evolving topic.

Legal Entity Identifier (LEI)

Swap parties are required to obtain a Global Markets Entity Identifier (“GMEI”). This allows regulators to track exposure between counterparties across a variety of products. There is an initial fee as well as an annual renewal fee.

Onboarding Documents

Each bank has its own set of DF documents that require a borrower to make certain representations and explain the disclosures the bank is required to make.

These documents typically require you to elect an End User Exception. Under the new law, swaps are subject to mandatory clearing process unless they qualify for an End User Exception. In simplest terms, this is a representation that the party is executing the hedge to mitigate commercial risk. For most borrowers, this means they are hedging an underlying financing and not using the derivative to speculate on interest rates.

Mark to Market (MTM)

Banks are now required to provide daily valuations of your derivative. Please note this is not the same as the level at which they will terminate the derivative and will include a disclosure saying as much.

Because of the arm lengths distance banks must maintain when offering derivatives, they are prohibited from assisting with most of the DF compliance process. Pensford helps guide clients through each phase of complying with the regulations and assists with ongoing monitoring.