With the intention of helping banks more easily buy and sell country and bank trade finance-related risk, Baft-IFSA has released additional master participation agreement (MPA) forms.
The original MPA forms are industry standard documents used by banks and their counterparties to simplify the process of buying and selling risk. Having standardised documentation is intended to reduce legal costs, increase efficiency and promote trade.
The new forms are to supplement the existing forms and support the treatment of transferred assets as a ‘true sale’ for accounting purposes, according to US accountancy principles. The agreement is governed by New York law, whereas the original MPA is governed by English Law.
It serves as an optional form for market participants looking to secure a risk participation as a true sale transaction, and wants to handle such obligations in a way that complies with US accountancy requirements.
The choice on which form to use is driven by the business decision the bank makes on how it wants to handle a specific transaction. For many banks, the US accounting treatment is not relevant.
Donna Alexander, chief executive officer of Baft-IFSA comments to GTR on the driving force behind creating these forms: “Having a standardised agreement for the industry is a major value-add to the banks – it creates efficiencies in the transactions and therefore the system as a whole.
“It also alleviates the overwhelming expense of bilateral negotiations on each risk participation undertaken.
“Keeping costs down for our members and the industry at large is indeed core to our mission.”
The Baft-IFSA legal advisory group, chaired by Michael Wiseman of Sullivan & Cromwell, and including member banks' in-house attorneys and outside counsel, drafted the supplementary form.
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