US watchdog reaches substituted compliance verdict
The Commodity Futures Trading Commission
(CFTC) has finalised substituted compliance determinations for six key
The US regulator on Friday announced
regulations in Australia, Canada, the European Union, Hong Kong, Japan and
Switzerland are deemed compatible with certain swap provisions of the
The move allows non-US dealers and non-US
major swap participants in those jurisdictions to use compliance with their
local regulators as a substitute to CFTC rules. The guidelines were approved by
three CFTC commissioners.
“These determinations reflect the
Commission’s commitment to coordinating our efforts to bring transparency to
the swaps market and reduce its risks to the public,” CFTC chairman Gary
“The comparability findings for the
entity-level requirements are a testament to the comparability of these
regulatory systems as we work together in building a strong international
The Commission also approved substituted
compliance for a number of key transaction-level requirements for the EU and
Japan, and is issuing comparability determinations for transaction-level
requirements for the EU.
The EU, in conjunction with the US, holds
the bulk of the global OTC derivatives transactions and in July agreed with the
CFTC to work close together in developing coherent rules, including a planned
January meeting to iron out key cross-border issues.
The CFTC can extend no-action relief or
issue guidance on which rules will be permitted under substituted compliance
and which must follow CFTC rules. It is expected to break down specific areas
each jurisdiction must amend, or face subjection to CFTC rules for entities
dealing with US counterparts
PJ Di Giammarino, CEO of JWG Group, a regulatory advisory body, said alignment at a more
granular level was needed compared to the agreed upon principles to ensure the
global OTC derivatives market functions correctly.
have realised the enormity of technical difficulty inherent in keeping rules
common across different cultural perspectives, business methods, tax regimes,
legal frameworks and languages,” he said.
we are in pretty choppy waters that will get worse unless we figure out how to
get the basic principles aligned at a greater level of detail,” he said.
The key cross-border issues also occur at a
time of leadership change within the CFTC. Commissioner Mark Wetjen, who will
step in as acting chairman between Gensler’s departure and Timothy Massad’s
arrival, will also take on the role of sponsor for the Commission’s Global
Markets Advisory Committee – a body set up to discuss competitive and
regulatory issues facing US interests globally, which includes meeting with
other regulators. However, agreement on cross-border
rules in greater detail may apply only to specific areas.