Fears relating to curtailing of CFTC cross-border swap jurisdiction confirmed

Doubts and concerns expressed in April with regard to lack of ability to enforce cross-border swap regulation by the US House of Agriculture Committee, the government department which has jurisdiction over the Commodity Futures Trading Commission (CFTC), appear to have been genuine as the US House of Representatives has this week signed off legislation scaling back the CFTC’s ability to impose swap rules abroad.

According to the Wall Street Journal, critics had warned that scaling these powers back to this extent would make it easier for banks to circumvent strict US rules.

The vote was 265 to 144, with some Democrats and the White House having expressed concern that this measure would hamstring the CFTC, and as yet a companion measure has not been brought into place by the Senate.

Republican lawmakers stated that teh bill, which would reauthorize the CFTC for another five years, would ensure the increased efficiency of the CFTC.

House Agriculture Committee Chairman Frank Lucas (Republican, Oklahoma), debating the measure on the House floor Monday, said it would “increase certainty in the marketplace and provide a more balanced approach to regulations impacting job creators.”

The White House last week said it “strongly opposes” the bill, warning it “undermines the efficient functioning” of the CFTC by “imposing a number of organizational and procedural changes and offers no solution to address the persistent inadequacy of the agency’s funding.”

As part of the bill, the CFTC’s staff wouldn’t be able to impose regulation through last-minute “guidance,” as the agency did last year for rules on swaps trading overseas. Instead, commissioners would have to sign off on formal policy. The CFTC also would be directed to recognize overseas swaps rules as more comparable to its own than it now does.

Rep. Maxine Waters (Democrat, California) said during Monday’s debate the bill “imposes heavy administrative burdens that prevent, delay, or weaken” the CFTC’s efforts to bring sunlight to the swaps market, as mandated by the 2010 Dodd-Frank financial regulatory overhaul.

As LeapRate has continued to report during the past year during which the matter of standardizing a regulatory framework for cross border OTC derivatives transactions and swaps, many jurisdictions including the European Parliament and the Japanese government have pledged their willingness to cooperate with the United States on creating an international framework for conducting business globally with recourse all round.

On this basis, the move to curtail the CFTC’s powers regarding cross border swaps appears somewhat retrograde.

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