Transatlantic trade body calls for cross-border harmonisation
Calls for US and European regulators to ensure mutual recognition and understanding when finalising new OTC derivatives rules have intensified, following the publication of a new report commissioned by the EU-US Coalition on Financial Regulation.
Entitled 'Inter-jurisdictional regulatory recognition: Facilitating recovery and streamlining regulation', the report addresses concerns over extraterritoriality and protectionism. The member associations of the coalition – which include the Futures and Options Association (FOA), the Futures Industry Association, the Association for Financial Markets in Europe, the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association among others – are concerned that regulatory proposals in the US and the EU are becoming increasingly incompatible with the G-20 call in 2010 for vigilance “to ensure open capital markets and avoid financial protectionism”.
The unease relates primarily to the new legislation that will require swaps to be traded on exchange-like platforms, centrally-cleared and reported to newly created data repositories, enacted via the Dodd-Frank Act in the US and the European market infrastructure regulation in Europe.
The Coalition commissioned international law firm Clifford Chance to produce a report on the urgent need to resume the dialogue for establishing a framework of transatlantic inter-jurisdictional regulatory accreditation and recognition.
The report argues that the 38 objectives and principles of securities regulation set out by the International Organisation of Securities Regulators and updated in 2010 offer an internationally-accepted foundation for regulation.
“Mutual regulatory recognition is critical for national supervisors seeking to implement post-crisis regulatory repair within the context of national laws and market structures, while also allowing for regulatory compatibility to address the global nature of financial service businesses,” said Cecelia Calaby, executive director at American Bankers Association Securities Association.
The Coalition admitted that there will be differences in the legal systems of different markets, but added that it believes there is a common foundation between regulatory objectives on both sides of the Atlantic. The legal risk, compliance complexity, regulatory uncertainty and transactional costs can all be reduced following a united regulatory approach, it stated.
“The transatlantic marketplace – through which 80% of the world’s financial business flows – could have a major part to play in that process, but not if its regulatory framework is market by fragmentation and conflict,” said Anthony Belchambers, CEO at the FOA. “Regulatory coherence is essential if the international competitiveness of the transatlantic marketplace and its contribution to global recovery is to be sustained.”
Michel Barnier, the European Commission's single market commissioner, indicated in a speech in Copenhagen in March that mutual recognition is on the agenda. “The co-existence of different national standards…is not a requirement of identity but of comparability,” he said – suggesting that comparable laws may eventually be accepted in both jurisdictions.