Qualified Financial Contracts Recordkeeping Rule
The U.S. Treasury recently finalized the Qualified Financial Contracts (QFC) recordkeeping rule. Most systemically important financial institutions (SIFI) impacted by this compliance requirement have been awaiting this final rule. As anticipated, the rule confirms the huge effort that firms will need to undertake within the next 18 to 48 months depending on the size of the SIFI.
The rule establishes a mechanism for the orderly resolution of a SIFI whose failure could create adverse effects on financial stability. Firms are required to maintain standard end of day position information related to the QFC such as collateral, counterparty and legal documentation. This information must be available to the FDIC and other regulators within 24 hours of the request. Because many of the impacted firm’s affiliates are included in this rule the compliance activities will require alignment of systems and documentation. Success will require an enterprise-wide effort with representation from many business disciplines and a commitment to additional resources.
One of the compliance areas of critical importance relates to legal agreements. The rule requires that agreements are stored electronically and certain key information from those agreements be indexed and abstracted. SIFIs are required to store counterparty information in a table linked to position, collateral and legal documentation. Between the volume and variation of agreements across the different QFCs, SIFIs will need professional assistance.
SIFIs will need to act fast to make sure they are prepared. Looking for assistance in building an effective Compliance and Ethics program? This whitepaper will help you begin your program by describing and prioritizing seven essential program elements.
About the Author:
Mitch is the head of the Compliance Practice at Mindcrest, and is responsible for assessing the compliance needs of each of our clients. He designs and develops creative solutions for our clients using his strong regulatory expertise.