Uganda moves towards enforceability of close-out netting
30 September 2021 Uganda
Image: AdobeStock/Dmitry Pichugin
Uganda is taking an important step towards providing enforceability of close-out netting, according to law firm ENSafrica.
This builds from a meeting hosted by the Bank of Uganda (BoU), the country鈥檚 central bank, to discuss draft regulations contained in The Financial Institutions (Preference and Appraised Book Value) Regulations 2021.
Previously, automatic early termination has been enforceable under contract law, but the Act voids transfers conducted within six months of a management takeover or closure of a financial institution in certain situations 鈥� including when the transfer was made at below appraised book value.
These provisions within the Act gave the central bank power to negate close-out netting against a financial institution that had become subject to insolvency proceedings.
Revisions to the above regulations curtail the impeachment powers available to BoU relating to the derivatives, repo and securities lending exposures held by a financial institution that has closed or been taken over.
These changes, under Section 88 of the Financial Institutions Act, will ensure that automatic early termination under an ISDA Master Agreement, Global Master Repurchase Agreement (GMRA) or Global Master Securities Lending Agreement (GMSLA) will not be obstructed or negated by the central bank.
鈥淭he result will be that market participants transacting with Uganda鈥檚 banks can be confident that they close-out in accordance with the transaction documents,鈥� says ENSafrica, which was appointed to advise and support drafting of the regulatory amendments.
ENSAfrica claims to be Africa鈥檚 largest law firm, with offices in Ghana, Kenya, Mauritius, Namibia, Rwanda, South Africa and Uganda and with more than 600 registered specialists and practitioners.
This builds from a meeting hosted by the Bank of Uganda (BoU), the country鈥檚 central bank, to discuss draft regulations contained in The Financial Institutions (Preference and Appraised Book Value) Regulations 2021.
Previously, automatic early termination has been enforceable under contract law, but the Act voids transfers conducted within six months of a management takeover or closure of a financial institution in certain situations 鈥� including when the transfer was made at below appraised book value.
These provisions within the Act gave the central bank power to negate close-out netting against a financial institution that had become subject to insolvency proceedings.
Revisions to the above regulations curtail the impeachment powers available to BoU relating to the derivatives, repo and securities lending exposures held by a financial institution that has closed or been taken over.
These changes, under Section 88 of the Financial Institutions Act, will ensure that automatic early termination under an ISDA Master Agreement, Global Master Repurchase Agreement (GMRA) or Global Master Securities Lending Agreement (GMSLA) will not be obstructed or negated by the central bank.
鈥淭he result will be that market participants transacting with Uganda鈥檚 banks can be confident that they close-out in accordance with the transaction documents,鈥� says ENSafrica, which was appointed to advise and support drafting of the regulatory amendments.
ENSAfrica claims to be Africa鈥檚 largest law firm, with offices in Ghana, Kenya, Mauritius, Namibia, Rwanda, South Africa and Uganda and with more than 600 registered specialists and practitioners.
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