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US CFTC to collaborate with Canadian provincial regulators in order to enhance supervision of cross-border regulated entities
The United States is regarded among the vast majority of electronic trading companies from retail FX brokers to the long-established and steadfast institutional trading desks of Chicago as being the most stringent and well-organised jurisdiction when it comes to ensuring that procedures are carried out correctly.
North of the border, however, things are somewhat different. The United States has three major regulators which operate on a federal level, whose procedures remain prominent in the everyday affairs of every aspect of the financial sector from investors to exchanges and even corporations.
Canada by contrast regulates its financial markets economy on a provincial basis, with separate rulings and separate officials making rules and enforcing them across all of Canada’s provinces, with a self regulatory authority operating a very scant service on a federal basis.
The US Commodity Futures Trading Commission (CFTC), the federal regulator which has tremendous power across the United States and has been instrumental in implementing the all-encompassing Dodd-Frank Wall Street Reform Act has today announced that it has signed a memorandum of understanding (MOU) with five of Canada’s provincial regulators, in order to enhance supervision of cross-border regulated entities.
CFTC Acting Chairman Mark Wetjen and leaders of the Alberta Securities Commission (ASC), the British Columbia Securities Commission (BCSC), the Ontario Securities Commission (OSC), and the Autorité des marchés financiers (AMF) (collectively Canadian Authorities) have entered into the MOU in order to establish a framework for cooperation and the exchange of information in the supervision and oversight of regulated entities that operate on a cross-border basis in the United States and in Alberta, British Columbia, Ontario, or Québec.
Through the MOU, the CFTC and the Canadian Authorities express their willingness to cooperate in the interest of fulfilling their respective regulatory mandates regarding derivatives markets. The scope of the MOU includes markets and organized trading platforms, central counterparties, trade repositories, and intermediaries, dealers, and other market participants.
The differences between the United States and Canada are not just restricted to the method by which financial services firms and executing venues are regulated in the two nations. The OSC is responsible for regulating Toronto’s market participants, however despite Toronto being North America’s third largest financial center after New York and Chicago, the majority of trading which takes place in Toronto is stock and equities orientated as opposed to the vast institutional FX businesses in New York and Chicago.
Additionally, the OSC is relatively quiet and until now has not engaged in full reformation of the markets in the way that the CFTC has, with no requirement for swap execution facilities or the highly sophisticated post-trade processing and reporting systems now required in the United States. Similarly, the retail FX industry in Ontario, which consists of relatively few market participants, is unburdened with the large capital adequacy requirement which its peers further south are bound with.
Indeed two of the major market participants in Canada are OANDA Corporation, and the Toronto branch of British firm CMC Markets, with OANDA having US NFA licensing instead of provincial Ontario licensing, and CMC Markets being a member of the self-regulatory Investment Industry Regulatory Organization of Canada and Member of the Canadian Investor Protection Fund, signifying that as a polar opposite to the extremely experienced US financial regulators, very few FX companies are overseen by Canada’s regulators at all.
The move toward unifying the procedure between the two neighboring North American nations therefore represents a progressive step as the US has already led the way in standardizing these procedures with European government officials implementing MiFID II this year which contains many similarities to the reforms set out in the Dodd-Frank Act, plus Singapore and Japan having supported moves toward cross-border regulatory frameworks with Europe and the US.