CFTC recognizes some foreign regulators’ oversight of key swaps components, causes more confusion
Friday afternoon saw a plethora of press releases by the CFTC which instead of clearing out the rulebook by which swaps and derivatives clearing counterparties have to comply with, effectively caused even more confusion and chaos. The CFTC announced local companies can abide by local regulators in six regions worldwide, namely Australia, Canada, the European Union, Hong Kong, Japan and Switzerland.
The CFTC granted foreign counterparties reprieve from some of its own rules and acknowledged adequate regulations in the fields of governing chief compliance officers, swaps data-record keeping and risk management programs. However it did not specify much about other areas that regulate swaps transactions where foreign regulators have not put their own rules.
It is a really foggy and unclear decision on how do they plan to move forward – they certainly plan to further cooperate further with foreign regulators on the rule-by-rule approach, however process is proving to be very time consuming. While the CFTC allows for “substituted compliance” with regulators in the above mentioned countries, some provisions need to be undertaken implicitly by European and Japanese authorities.
European authorities have already expressed their frustration of working together with the CFTC as they stated that communication was rather difficult, which in itself does not come as a big surprise considering the dire state of the US regulator’s governing body. The EU authorities’ claim was further supported by CFTC commissioner Scott D. O’Malia who dissented on grounds that there was not enough collaboration with foreign regulators to harmonize regulatory requirements in consistence with G-20 reforms.
His dissent was a hard blow for the bipartisan credibility of the regulator since as of now he is the only Republican commissioner on the board. He further elaborated that the notices issued did not have sound legal basis and fail to provide a clear agenda on how to move on going forward. He stressed that the adopted rule-by-rule approach leaves major regulatory gaps with foreign jurisdictions unanswered and cooperation continues to be very difficult to achieve.