On 14 Jun 2018 Single counterparty credit limit Final Rule was finalized by Federal Reserve System for US and Non-US banking organizations after 7 years of iteration of proposals and re-proposals.
Final Rule imposes limits on aggregate amount of net credit exposure that a covered company, may have to an unaffiliated counterparty.
SCCL applicable for:
US globally systematic important banks (G-SIBs).
US Bank Holding Companies (US-BHCs) with $ 250 billion+ total assets.
US operations of foreign banking organizations (FBOs) with $250 billion or more in total global assets.
Intermediate holding companies (IHC) with $50 billion or more in total assets.
In Total SCCL Final Rule will be applicable to will apply to the eight US G-SIBs, two US BHCs, 82 FBOs and 12 IHCs.
Compliance Effective date:
Globally systematically important banks are required to be compliant by January 1, 2020, and all other firms are required to be compliant by July 1, 2020.
Reference data and SCCL implications:
SCCL single counterparty credit limit touches lot many reference data attributes as basically this regulatory regime revolves around legal entities and their hierarchies. It covers terminologies like covered company, counterparty, intermediate holding company, SPVs and FBOs etc. which are part of legal entity data world. It also talks about connected counterparties which majorly explain about hierarchy data world.
SCCL majorly focuses on economic interdependence and control relationship for covered counterparties and below it’s explained that how economic interdependence and controlling relationship co-exist among minimum of two counterparties.
SSCL offers a test that when its required to determine whether economic interdependence exists between two Counterparties, a Covered Company or Covered Foreign Entity it must assess whether the financial distress of one Counterparty would prevent the other Counterparty from full repayment of the other Counterparty liabilities and if the insolvency or default of first Counterparty will be correlated with the insolvency or default of other Counterparty. To determine whether “control relationship” exists between two Counterparties, a Covered Company or Covered Foreign Entity it is a must to check if one Counterparty holds 25 percent or more of voting securities or controls the election of a majority of the directors, trustees, general partners or individuals exercising similar functions of the other Counterparty.