CFTC exempts Canada’s big-five banks from risk reporting

Whilst extensive measures have been taken over the last few years to adopt a highly conservative approach toward reporting of trades and risk by swap dealers in the United States, five of Canada’s banks have been issued with a time-limited no-action letter that provides relief to each of the institutions in the northern dominion that are registered with the Commodity Futures Trading Commission (CFTC )as swap dealers.

The five Canadian banks covered by the no-action letter are: the Bank of Montreal, the Bank of Nova Scotia, the Canadian Imperial Bank of Commerce, the Royal Bank of Canada, and the Toronto Dominion Bank.

The letter provides no-action relief with respect to the requirement that swap dealers furnish risk exposure reports on a quarterly basis, as mandated by Regulation 23.600.

In particular, the letter provides time-limited no-action relief covering the quarterly risk exposure reports for any fiscal quarter ending on or before July 31, 2014. Accordingly, the five Canadian banks covered by the letter will be required to provide their first quarterly risk reports to the CFTC for the fiscal quarter ending on October 31, 2014.

Whilst Canada’s trading landscape generally focuses on traditional asset classes such as stocks and equities in Toronto, North America’s third largest financial center after New York and Chicago, FX makes up a relatively small percentage of all trades conducted north of the border.

A further dichotomy exists, however, insofar as that the 2008 financial crisis did not affect Canada’s banking sector anywhere near as much as it did in the United States, which is one of the world’s largest institutional FX jurisdictions, and home to the most advanced trading desks.

The Dodd-Frank Act’s rulings on OTC derivatives considered consumer protection as a very high priority, and instigated the requirement for swap execution facilities and extensive trade reporting measures, all of which required infrastructural and procedural changes across all FX firms in the institutional sector across the United States.

In issuing this no-action letter to five major banks, the CFTC appears to be content that risk reporting for Canada’s conservative financial sector is not such an urgent priority.

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