Japanese regulator hits out at US cross-border swaps proposal

Japan's financial regulators believe a US proposal to expand its swaps rules to non-US persons could be damaging.

Japan’s financial regulator has criticised a proposed rule from the US derivatives watchdog to expand stricter OTC derivatives rules to non-US dealers.

The Commodity Futures Trading Commission (CFTC) has proposed to require non-US swaps dealers to register with the regulator and therefore become subject to its own rules.

In a joint letter between the Japanese Financial Services Agency (FSA) and Bank of Japan (BOJ) issued to the CFTC, it stated the proposal will lead to “overlapped regulation, placing additional burdens on financial institutions”.

The regulators highlighted that some non-US trading firms will opt to avoid doing business in the US in order to keep their activities below the CFTC’s threshold. “This may in turn result in market fragmentation and have an adverse impact on liquidity,” the letter said.

“A foreign branch of US swap dealers and foreign consolidated subsidiaries (FCS) may lose business opportunities outside the US market.”

It concluded that regulators should be able to defer to each other’s rules in a non-discriminatory way, and to pay “due respect to home country regulation regimes”.