Regulators have a tough enough time policing their domestic jurisdictions, but with the complexities of global commerce, cyber threats proliferating across the globe, and shady virtual businesses evading the rule of law, the need for ample coordination and cooperation between national regulators is paramount. Due to this need, the United States Commodity Futures Trading Commission (CFTC) and the Securities & Exchange Commission (SEC), and the United Kingdom Financial Conduct Authority (FCA) have always had long-standing agreements to work together to achieve mutual goals.
During this week, the BritishAmerican Business Transatlantic Finance Forum convened in New York, and Nausicaa Delfas, Executive Director of International and member of the Executive Committee at the FCA, spoke about “regulatory co-operation and coherence between the UK and the US”. The need for these efforts is apparent:
London and New York are ranked the top two financial cities and four-fifths of the world’s over-the-counter (OTC) interest rate derivatives (representing around $1.2 trillion of notional value every day) are written in the UK or in the US.
The CFTC, SEC, and the FCA from time to time have signed a new “Memorandum of Understanding” (MOU) that, among other things, has enhanced “cooperation and the exchange of information in the supervision and oversight of certain regulated firms that operate on a cross-border basis in the US and in the UK.” The greatest threat of potential fraud and non-compliance originates today from offshore locales, especially when the whereabouts of virtual “bad actors” are cleverly disguised on the Internet.
Ms. Delfas began her remarks with:
The FCA itself is a strong advocate for successful, open, global financial markets, with regulation that underpins free trade, pointing away from tying markets to locations. We now find ourselves however in a complex period for global policy making. For a long time, there has been strong international consensus built around the value of cross-border co-operation. But the geo-political environment today is less predictable – and more questions are emerging around that consensus.
Whilst past approaches have been more rules based, she emphasized the need to evolve to a more results oriented focus:
It is through this cooperation that our respective regimes remain aligned in outcomes, even if not in technical detail, which enables free trade to flourish. And by enabling free trade to flourish, we create tangible benefits for our economies – lower costs of doing business, more competition (and with it, innovation), increasing liquidity, and ultimately lower prices for the end consumer.
Delfas proceeded to review a number of cooperative efforts that have borne fruit of late, including topics like market access, Brexit, financial innovation, market fragmentation, LIBOR reform, playing a key role in steering the G20 agenda, and even the impact of climate change on the financial sector. The result of this ongoing dialogue has been the development of the Financial Innovation Partnership, which will build upon the extensive work that has already been done on “identifying the new innovative trends and working out how we can best supervise the fintech sector – whilst continuing to meet our objectives of protecting the public and promoting well-functioning markets”.
After a few kind remarks for CFTC Chairman Chris Giancarlo, who will be retiring shortly from the agency, Ms. Delfas concluded:
Our markets are vibrant and interconnected, innovative and driving prosperity for both the US and UK. Whilst Brexit will create challenges, London will remain an important international centre and a hub for global firms. And whatever the outcome, you can expect the FCA to continue to champion high standards, international coherence and open markets, and that we will continue to build on our strong relationships with both US and EU regulators.