Giancarlo releases paper to revise cross-border swaps regulation
October 2, 2018
Commodity Futures Trading Commission Chairman Christopher Giancarlo on Monday released a white paper titled "Cross-Border Swaps Regulation Version 2.0: A Risk-Based Approach with Deference to Comparable Non-U.S. Regulation."
Giancarlo intends to direct the CFTC staff to put forth new rule proposals to address a range of cross-border issues in swaps reform, the CFTC said in a news release.
"I have been a constant supporter of the swaps market reforms passed by the U.S. Congress in Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the commitments made by the G20 leaders in Pittsburgh in 2009," said Giancarlo.
"Those are clearing standardized swaps through central counterparties, reporting swaps to trade repositories, and trading standardized swaps on regulated trading platforms.
"However, I have long said that I hold reservations about the CFTC's current approach to applying its swaps rules to cross-border activities."
Giancarlo said the paper identifies a number of adverse consequences of the CFTC's cross-border approach, including:
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▪ It is expressed in "guidance" rather than formal regulation subject to the Administrative Procedure Act.
▪ It is over-expansive, unduly complex, and operationally impractical, increasing transaction costs and reducing economic growth and opportunity.
▪ It relies on a substituted compliance regime that encourages a somewhat arbitrary, rule-by-rule comparison of CFTC and non-U.S. rules under which a transaction or entity may be subject to a patchwork of CFTC and non-U.S. regulations.
▪ It shows insufficient deference to non-U.S. regulators that have adopted comparable G20 swaps reforms and is inconsistent with the CFTC's longstanding approach of showing comity to competent non-U.S. regulators in the regulation of futures.
The paper recommends changes to the CFTC's cross-border approach that Giancarlo said "are supportive of the G20 swaps reforms and aligned to Congressional intent, and that better balance systemic risk mitigation with healthy swaps market activity in support of broad-based economic growth."
Futures Industry Association President and CEO Walt Lukken applauded Giancarlo's "effort to rethink the manner in which cross-border regulations are applied to the derivatives markets."
"The derivatives industry is global in nature, so it is imperative that international regulators come together to design a coherent regulatory framework that recognizes this fact.
"The deference model utilized by the futures markets has worked extraordinarily well over the 30 years of its existence, even during times of crisis.
"FIA agrees that a similar recognition model would benefit the broader swaps industry without jeopardizing the safety and soundness of our marketplace. FIA looks forward to providing input on the upcoming rulemakings that will implement these proposed approaches."