The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") granted no-action relief to futures commission merchants, retail foreign exchange dealers and introducing brokers (collectively, "CFTC registrants") in relation to the capital treatment of operating leases.
The DSIO issued the relief, in part, due to a Financial Accounting Standards Board ("FASB") Accounting Standards Update for Leases ("FASB Update") that will become effective after December 15, 2018 or for fiscal years beginning after December 15, 2019 depending on the type of entity. The FASB Update "will change the treatment for operating leases under GAAP by requiring a lessee, including a [CFTC registrant], to include on its balance sheet an asset and a liability arising from the operating lease." As these amounts will generally approximately offset, they would not have a material effect on a firm's ultimate equity. However, CFTC registrants generally cannot include illiquid assets in their regulatory capital computations, with the result that their capital would be negatively affected by the lease liability and there would be no compensating recognition of the lease asset.
The no-action letter is intended to address this imbalance, which was an unintended indirect effect of the change to the FASB accounting standards. The SEC previously had issued a similar no-action letter.
Cadwalader assisted in the preparation of the two no-action letters.
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