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    BoE and CFTC Strengthen Supervisory Cooperation in Derivatives Markets

    October 20, 2020

    CFTC and BoE signed an updated Memorandum of Understanding (MoU) regarding cooperation and the exchange of information in the supervision and oversight of clearing organizations that operate on a cross-border basis in the US and the UK. Through this MoU, CFTC and BoE expressed their willingness to cooperate in the interest of fulfilling their respective regulatory mandates, particularly in preserving the benefits of cross-border clearing activity. The CFTC Chair (Heath P. Tarbert) and the BoE Deputy Governor for Financial Stability (Jon Cunliffe) published a joint op-ed article in Risk.net. In this article, they outline the details of the agreement and discuss the framework for regulating the global derivatives markets.

    The op-ed article highlights that the long-lasting significance of regulatory reforms was seen when the COVID-19 pandemic sent shockwaves through the world’s financial markets earlier this year. The agreement entrenches these key principles: the central counterparty’s home country is the primary supervisor; the supervision of central counterparties that operate in both the US and UK is based on close co-operation and mutual respect; and the home authority will take the lead in any response in emergency situations. Both US and UK agree that cross-border infrastructure needs to be held to appropriately high standards. To support safe and efficient global markets, the regulation and supervision of such infrastructure needs to maintain the highest levels of resilience, commensurate with the risks. Also, any conflicting or overlapping regimes need to be avoided, which is why this regulator relationship needs to be founded on the right degree of deference to home supervisors.

    The MoU strengthens the relationship between the regulators responsible for resilience of the largest and most important derivatives markets and central counterparties in the world. The supervision of central counterparties that operate in both US and UK is based on close cooperation and mutual respect for each regulator’s regime and supervisory practices. The MoU recognized the history of cooperation between CFTC and BoE and encouraged supervisory coordination and reliance upon the other authority’s supervision and regulatory framework. The MoU supersedes a 2009 agreement and follows a 2019 joint statement by the CFTC, BoE, and other UK authorities on continuity of derivatives trading and clearing post-Brexit. 

     

    Related Link: BoE News Release

     

    Keywords: Europe, Americas, UK, US, Banking, MoU, CCPs, Derivatives, Cross Border Cooperation, CFTC, BoE

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