Commissioner Stump of Commodities Futures Trading Commission (CFTC) weighed in on the ongoing dispute over swaps regulation.
Dawn Stump, a CFTC Commissioner, gave a speech at the FIA-SIFMA AMG Asset Management Derivative Forum.
The event was held in Dana Point, California on February 6, 2020.
During the speech, Commissioner Stump talked about global swaps regulations.
“Through an aggressive interpretation of CEA Section 2(i), the Cross-Border Guidance issued in July 2013 took expansive views on what swaps non-US entities (and their counterparties) had to count against the de minimis swap dealer registration threshold and the Dodd-Frank requirements that applied to non-US entities that registered as swap dealers. Objections intensified four months later in November 2013, when DSIO issued its ‘ANE Advisory’ stating that a non-US swap dealer regularly using personnel located in the US to arrange, negotiate, or execute a swap with a non-US person counterparty generally would be required to comply with certain Dodd-Frank requirements. Through no-action relief and Commission action, though, the ANE Advisory has never taken effect.
“Finally, perhaps one of the most contentious issues among global regulators stems from the fact that the CFTC required registration of any central counterparty (‘CCP’) seeking to clear swaps for US customers, without assessing whether that CCP was subject to comparable, comprehensive supervision and regulation in its home country, as the statute provided. The perception, whether accurate or not, that the CFTC substantially overreached poisoned the agency’s relationships with its international regulatory colleagues, and those relationships have not fully recovered to this day.
“Today, many other countries have made tremendous progress in implementing the reforms agreed to by the G-20 leaders in Pittsburgh in 2009. That means it is time for the CFTC to return to what we know from experience has worked well: global regulatory coordination and deference to regimes with comparable regulation. I am pleased that the CFTC is, in fact, implementing this approach. Likewise, I expect other jurisdictions to rely on the CFTC’s abilities and respect our expertise. Such a two-way street will best fulfill the mission the G-20 leaders agreed to in Pittsburgh almost ten years ago.”
The backdrop for Stump’s remarks is a dispute which started in 2017 between the US and European regulators.
As Stump noted, starting with the G20 Summit held in Pittsburgh in 2010, global regulators agreed on a global framework for swaps regulation.
The global regulators agreed on a set of principles- referred to as equivalency- which would govern all global regulators; along with equivalency, the global regulators also agreed on deference.
This meant that while all global regulators would adhere to the agreed upon principles, it also meant that regulators would not involve themselves in regulation beyond its borders.
Following Brexit, European regulators began threatening to demand that they approve certain swaps transactions, even if those transactions happened outside their borders.
In July 2019, Steven Maijoor, the head of the European Securities and Market Authority (ESMA), appeared on a FIA, Futures Industry Association, podcast where he weighed in on the dispute.
“Relying on foreign regulation and regulators will continue to be very important, but in some cases, as you identified when there are systemic risks, in those cases, you want better tools from a European perspective, and making sure that the risks from a European perspectives are- that we have the information on that and if there is a concern we can address that from a supervisory perspective,” Maijoor stated.
US regulators have insisted that foreign regulators will not be allowed to have veto power over swap transactions which occur in the US.
This issue has also seen bipartisan support with both Republican and Democrat politicians supporting US regulators.
Stump took a more conciliatory approach in her speech, stating that this may have started with US overreach, “The perception, whether accurate or not, that the CFTC substantially overreached poisoned the agency’s relationships with its international regulatory colleagues, and those relationships have not fully recovered to this day.”
Stump, like all American regulators, insists that deference must still apply, “Likewise, I expect other jurisdictions to rely on the CFTC’s abilities and respect our expertise. Such a two-way street will best fulfill the mission the G-20 leaders agreed to in Pittsburgh almost ten years ago.”