(a) Covered QFCs not required to be conformed. Notwithstanding section
252.82, a covered entity is not required to conform a covered QFC
to the requirements of this section if the covered QFC:
(1) Does not explicitly provide any default
right with respect to the covered QFC that is related, directly or
indirectly, to an affiliate of the direct party becoming subject to
a receivership, insolvency, liquidation, resolution, or similar proceeding;
and
(2) Does not explicitly
prohibit the transfer of a covered affiliate credit enhancement, any
interest or obligation in or under the covered affiliate credit enhancement,
or any property securing the covered affiliate credit enhancement
to a transferee upon or following an affiliate of the direct party
becoming subject to a receivership, insolvency, liquidation, resolution,
or similar proceeding or would prohibit such a transfer only if the
transfer would result in the supported party being the beneficiary
of the credit enhancement in violation of any law applicable to the
supported party.
(b) General prohibitions.
(1) A covered QFC may not permit the exercise
of any default right with respect to the covered QFC that is related,
directly or indirectly, to an affiliate of the direct party becoming
subject to a receivership, insolvency, liquidation, resolution, or
similar proceeding.
(2) A covered QFC may not prohibit the transfer of a covered affiliate
credit enhancement, any interest or obligation in or under the covered
affiliate credit enhancement, or any property securing the covered
affiliate credit enhancement to a transferee upon or following an
affiliate of the direct party becoming subject to a receivership,
insolvency, liquidation, resolution, or similar proceeding unless
the transfer would result in the supported party being the beneficiary
of the credit enhancement in violation of any law applicable to the
supported party.
(c) Definitions relevant to the general prohibitions.
(1) Direct party. Direct party means a covered entity or excluded
bank that is a party to the direct QFC.
(2) Direct QFC. Direct QFC means a QFC that is not a credit enhancement, provided
that, for a QFC that is a master agreement that includes an affiliate
credit enhancement as a supplement to the master agreement, the direct
QFC does not include the affiliate credit enhancement.
(3) Affiliate credit enhancement. Affiliate credit enhancement means
a credit enhancement that is provided by an affiliate of a party to
the direct QFC that the credit enhancement supports.
(d) General creditor protections. Notwithstanding paragraph (b) of this section, a covered direct
QFC and covered affiliate credit enhancement that supports the covered
direct QFC may permit the exercise of a default right with respect
to the covered QFC that arises as a result of:
(1) The direct party becoming subject to
a receivership, insolvency, liquidation, resolution, or similar proceeding;
(2) The direct party
not satisfying a payment or delivery obligation pursuant to the covered
QFC or another contract between the same parties that gives rise to
a default right in the covered QFC; or
(3) The covered affiliate support provider
or transferee not satisfying a payment or delivery obligation pursuant
to a covered affiliate credit enhancement that supports the covered
direct QFC.
(e) Definitions relevant to the general creditor protections.
(1) Covered direct QFC. Covered direct QFC means a direct QFC to
which a covered entity or excluded bank is a party.
(2) Covered affiliate
credit enhancement. Covered affiliate credit enhancement means
an affiliate credit enhancement in which a covered entity or excluded bank
is the obligor of the credit enhancement.
(3) Covered affiliate
support provider. Covered affiliate support provider means, with
respect to a covered affiliate credit enhancement, the affiliate of
the direct party that is obligated under the covered affiliate credit
enhancement and is not a transferee.
(4) Supported
party. Supported party means, with respect to a covered affiliate
credit enhancement and the direct QFC that the covered affiliate credit
enhancement supports, a party that is a beneficiary of the covered
affiliate support provider’s obligation(s) under the covered affiliate
credit enhancement.
(f) Additional creditor protections for supported
QFCs. Notwithstanding paragraph (b) of this section, with respect
to a covered direct QFC that is supported by a covered affiliate credit
enhancement, the covered direct QFC and the covered affiliate credit
enhancement may permit the exercise of a default right after the stay
period that is related, directly or indirectly, to the covered affiliate
support provider becoming subject to a receivership, insolvency, liquidation,
resolution, or similar proceeding if:
(1) The covered affiliate support provider
that remains obligated under the covered affiliate credit enhancement
becomes subject to a receivership, insolvency, liquidation, resolution,
or similar proceeding, other than a Chapter 11 proceeding;
(2) Subject to paragraph (h)
of this section, the transferee, if any, becomes subject to a receivership,
insolvency, liquidation, resolution, or similar proceeding;
(3) The covered affiliate
support provider does not remain, and a transferee does not become,
obligated to the same, or substantially similar, extent as the covered
affiliate support provider was obligated immediately prior to entering
the receivership, insolvency, liquidation, resolution, or similar
proceeding with respect to:
(i) The covered affiliate credit enhancement;
(ii) All other covered
affiliate credit enhancements provided by the covered affiliate support
provider in support of other covered direct QFCs between the direct
party and the supported party under the covered affiliate credit enhancement
referenced in paragraph (f)(3)(i) of this section; and
(iii) All covered affiliate
credit enhancements provided by the covered affiliate support provider
in support of covered direct QFCs between the direct party and affiliates
of the supported party referenced in paragraph (f)(3)(ii) of this
section; or
(4) In the case of a transfer of the covered affiliate credit enhancement
to a transferee,
(i) All of the ownership interests of
the direct party directly or indirectly held by the covered affiliate
support provider are not transferred to the transferee; or
(ii) Reasonable assurance
has not been provided that all or substantially all of the assets
of the covered affiliate support provider (or net proceeds therefrom),
excluding any assets reserved for the payment of costs and expenses
of administration in the receivership, insolvency, liquidation, resolution,
or similar proceeding, will be transferred or sold to the transferee
in a timely manner.
(g) Definitions relevant to the additional creditor
protections for supported QFCs.
(1) Stay period. Stay period means, with respect to a receivership, insolvency, liquidation,
resolution, or similar proceeding, the period of time beginning on
the commencement of the proceeding and ending at the later of 5:00
p.m. (eastern time) on the business day following the date of the
commencement of the proceeding and 48 hours after the commencement
of the proceeding.
(2) Business day. Business day means a day
on which commercial banks in the jurisdiction the proceeding is commenced
are open for general business (including dealings in foreign exchange
and foreign currency deposits).
(3) Transferee. Transferee means a person to whom a covered affiliate credit enhancement
is transferred upon the covered affiliate support provider entering
a receivership, insolvency, liquidation, resolution, or similar proceeding
or thereafter as part of the resolution, restructuring, or reorganization
involving the covered affiliate support provider.
(h) Creditor protections
related to FDI Act proceedings. Notwithstanding paragraphs (b),
(d), and (f) of this section, with respect to a covered direct QFC
that is supported by a covered affiliate credit enhancement, the covered
direct QFC and the covered affiliate credit enhancement may permit
the exercise of a default right that is related, directly or indirectly,
to the covered affiliate support provider becoming subject to FDI
Act proceedings:
(1) After the FDI Act stay period, if the
covered affiliate credit enhancement is not transferred pursuant to
12 U.S.C. 1821(e)(9)-(e)(10) and any regulations promulgated thereunder;
or
(2) During the FDI
Act stay period, if the default right may only be exercised so as
to permit the supported party under the covered affiliate credit enhancement
to suspend performance with respect to the supported party’s obligations
under the covered direct QFC to the same extent as the supported party
would be entitled to do if the covered direct QFC were with the covered
affiliate support provider and were treated in the same manner as
the covered affiliate credit enhancement.
(i) Prohibited terminations. A covered
QFC must require, after an affiliate of the direct party has become
subject to a receivership, insolvency, liquidation, resolution, or
similar proceeding:
(1) The party seeking to exercise a default
right to bear the burden of proof that the exercise is permitted under
the covered QFC; and
(2) Clear and convincing evidence or a similar or higher burden of
proof to exercise a default right.
