ISDA and 21 other Trade Associations (collectively “ISDA”) yesterday submitted a letter to regulators requesting a suspension of the IM Phase 5 and 6 deadlines, pending COVID-19 clarity. The letter also suggests that when and if new deadlines are set, “sufficient lead time be provided”. The letter is supplemented by an article by Scott O’Malia, essentially restating the letter’s advocacy.
ISDA’s position amounts to an assertion that, in the current context, timely compliance with existing deadlines represents an “insurmountable hurdle”. It cites the following obstacles:
- Custodian client onboarding is “already being impaired”.
- Electronic execution may not be enforceable in every jurisdiction. “Wet ink” signing presents practical issues during lockdown.
The letter goes on to state two related and more general points, that business continuity and volatile market conditions are necessarily diverting, already scarce, resources from IM implementation efforts.
It comes as no surprise that ISDA make this representation, and the Trade Associations are to be congratulated on their relatively rapid and concerted response.
How strong is their case? It has not been our experience to date that custodian onboarding is being impaired and this is not the public stance of the larger custodians. Electronic execution is enforceable in major jurisdictions: UK, US, Japan et al. While ISDA’s more general points may be applicable to Phase 5, although we have seen no material interruption to implementation efforts so far, it is not clear why they appeal to a lack of clarity in support of a suspension of the more distant Phase 6.
It is entirely normal to open negotiations with a high demand in the expectation of meeting towards the middle. However, given the almost coincident statement by the EC’s Patrick Pearson to Risk magazine that there is no intention to delay, temporary cancellation of Phase 5 and 6 may be an ambitious request. With the obvious caveat that events are rapidly reshaping the Regulatory environment across the board, it remains our view that IM mitigation is likely to come in the form of limited delays closer to the deadlines, or post-deadline enforcement relief. Clearly, should it come to a conflict between Regulatory will and reality- reality will win. As of now, in respect of IM implementation, it is by no means clear that this point is in sight.Contact Us