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September 11, 2017

CFTC published the translation of an article written by its Chairman Chris Giancarlo in French. In this article titled “Deference is the Path Forward in Cross-Border Supervision of CCPs,” the CFTC Chairman discusses the post-financial crisis swaps reform efforts. He asserts “It is notable that the G-20 leaders pledged their efforts to the consistent implementation of global standards rather than identical implementation. It follows that the best route to “consistent implementation” is the through mutual deference to comparable foreign regulatory frameworks.”

After the global financial panic, the G20 leaders agreed on several key reforms. While some of the reforms remain to be implemented, others have been remarkably successful such as the central clearing of swaps. This success gives rise to the new challenges in regulatory oversight, particularly in the area of cross-border supervision of swap central counterparties (CCPs). The CFTC Chairman highlights that "differing approaches" to CCP cross-border supervision can lead to regulatory redundancies and legal uncertainty, which may result in increased costs and disincentives to centrally clear. He adds that the CFTC's regulatory framework for futures gives non-U.S. intermediary firms direct access to U.S. customers on the basis of compliance with regulation of their home jurisdiction. A similar approach is used for many requirements applicable to non-U.S. swaps dealers and major swaps participants. Recently, as part of the common approach between EC and CFTC in the regulation and supervision of cross-border CCPs, CFTC allowed certain EU-based CCPs seeking to operate in the United States to comply with the corresponding EU regulatory requirements. This arrangement "increases regulatory coordination necessary" and "promotes financial stability by helping to ensure that CCPs based in multiple jurisdictions are held to the same high standards."


These deference arrangements not only support the cross-border activities of different actors in the financial markets, but also help avoid fragmentation in the markets, protectionism, and regulatory arbitrage. CFTC staff is looking at how to incorporate deference into other parts of the regulatory framework and form stronger bilateral and multilateral alliances with other regulators. In case a CCP is systemically important in a few jurisdictions and deference may not be possible, joint supervision between the relevant authorities may be a more efficient and practical solution. In conclusion, Mr. Giancarlo reiterates that "increased application of deference is the path forward in the cross-border supervision of CCPs."

Keywords: Americas, US, Banking, Securities, CCP, Cross-Border Supervision, CFTC

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