CFTC Chairman Speaks About Cross-Border Application of the Swaps Rules

Although the CFTC Chair appreciates the accomplishment, with Vice President Dombrovskis last Fall, of equivalence for U.S. trading venues and exemptions for EU trading venues, he remains concerned with proposals and pronouncements in EU about financial regulation and supervision of third-country firms that seem to reject deference as the governing principle for cross-border regulation. He said: “We are all aware of the history of cross-border regulation between the CFTC and EU. Many here in Europe understandably criticized past CFTC actions for over-extending CFTC rules to European markets and firms.” He then mentioned that, earlier this week, in Europe, he presented new views on how best to apply swaps reform regulation to firms and transactions across borders. He announced that he will shortly publish a comprehensive and detailed white paper that analyzes the shortcomings of the current approach of CFTC and recommends improvements that better allow cross-border derivatives markets to thrive while meeting the goals of G20. He said that this white paper will serve as a roadmap for a series of rule makings that he intends to put forward to the full CFTC Commission and, with their input, thereafter for public notice and comment and eventually adoption. He called on the policymakers and regulators of Europe to join him in adopting a similar approach to the cross-border application of swaps reform regulation. 

The CFTC Chair said, “We have a rare and precious opportunity to trust one another; to put into place contemporaneously laws, rules, and regulations that enshrine regulatory and supervisory deference in how we treat third country firms and transactions.” EU should commit to an equivalence determinations process that focuses on achieving comparable regulatory outcomes and not rule-by-rule exactitude.  Thus, EU can provide necessary legal and regulatory certainty to third country firms. EU should rely as much as possible on third country regulators and supervisors. He wants CFTC to do the same. However, he expressed a concern that the current EU legislative proposals on central counterparty (CCP) supervision are going in a different direction. These proposals, when understood alongside comments from some European officials, raise doubt about continuance of the policy of deference. He is concerned that decisions made in the next few months may end up having a deleterious effect on transatlantic financial trade. He said he will embark CFTC on the course of greater regulatory deference, including concrete proposals to further open up the CFTC regulatory regime to European firms and markets. His proposal seeks to recognize the power and authority of EU authorities to regulate and supervise the European market with limited involvement from CFTC. It welcomes an EU approach that will do the same to U.S. firms and markets. However, this is one approach.

The other approach, he said, is to reject what he puts forward and to continue down the path of expanding direct European regulation and supervision over third country firms. He said: “The choice of approach is yours to make. I sincerely hope that we all recognize the unique opportunity before us to achieve true regulatory coordination between the U.S. and Europe. It is time to seize that opportunity by putting in place the relevant laws, standards, and policies to reciprocate our path of deference with a European re-commitment to that most beneficial approach. Or reject this approach and turn down that very different path of overlapping and confounding cross-border regulation with its high regulatory cost and constraints on economic growth. This would be the legacy of policymakers making such a choice.” He clarified that the course to be set for CFTC will be robustly debated in the United States. The prospect of this course being fully implemented will be greatly enhanced if EU and other non-U.S. counterparts pursue a common approach. In closing, he said that “I look to you to make the right choice and to express your choice with clear statements and clear legislative and regulatory actions.”

Keywords: Americas, Europe, US, EU, Securities, Swaps Reform, Cross Border Cooperation, Third Country, Equivalence Regime, CFTC