Fed's final single-counterparty credit rule

What large banking organizations need to know

Fed’s final single-counterparty credit rule for large banking organizations

The Federal Reserve Board (Federal Reserve) on June 14, 2018 approved its final single-counterparty credit limit (SCCL) rule for large banking organizations. The rule implements section 165(e) of the Dodd-Frank Act and is intended to reduce the risks to financial stability from a single company’s failure by preventing concentrations of risk between large banking organizations and their counterparties. In final form, the rule is generally similar to the proposed rule, though the applicability thresholds have been increased from $50 billion to $250 billion, reflecting the increase to the Systematically Important Financial Institutions asset threshold for enhanced prudential standards (EPS) in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).

The requirements of the final rule are tailored according to the size of a firm. Download the PDF from this page to learn more about the tailored requirements.

U.S. BHCs or FBOs with assets of $100 billion to $250 billion

The Federal Reserve states that it is developing a proposal on application of EPS to U.S. bank holding companies (BHCs) or foreign banking organizations (FBOs) with assets of $100 billion to $250 billion. For FBOs in particular, the proposal will also address application of EPS to subsidiary U.S. intermediate holding companies (IHCs); the Federal Reserve states the proposal and other tailoring and implementation efforts related to EGRRCPA could result in amendments to the current SCCL final rule.

Compliance deadline and reporting requirements

U.S. Global Systematically Important Banks, major FBOs, and major IHCs must comply with the final rule by January 1, 2020; all other covered entities must comply by July 1, 2020. Covered companies are expected to comply with the rule on a daily basis and must report to the Federal Reserve quarterly.

Final rule implementation challenges

Financial institutions adapting to the new rule are encountering a number of challenges when both developing a roadmap to implement and actually executing the roadmap. Key among these are as follows:

  1. SCCL Program Management: due to fragmented and separate infrastructures for different business units, between banking and trading book assets, and between Risk and Finance functions, creation of a response team and associated implementation roadmap can prove very difficult.
  2. SCCL Program Execution: lack of access to required data, uncertainty over the quality and accuracy of the data, as well as optimization of business strategies to remain compliant with final rule are among some of the key challenges in execution.
  3. Reporting and Monitoring: development of performance monitoring metrics (to identify potential breeches), on a daily basis, as well as ability to report daily, are proving to be key hurdles in postexecution stage.

Further detail on the key challenges in responding to the final rule, along with ways in which KPMG can help, can be found in the following document.