Swaps and derivatives group says a lack of international regs coordination will be harmful to markets.
While the tasks of implementing financial regulation in the US and in Europe are daunting, one problem lurking in the future is coordination of both sets of rules. And it hasn’t helped that regulators on both sides of the Atlantic have been critical of one another (see related story here).
Now the International Swaps and Derivatives Association (ISDA) has stepped into the discussion, gathering the backing of several global financial industry associations. In a statement released July 6, ISDA decried the lack of cooperation in new derivatives laws between the US and the European Union called on regulators to “intensify cooperation to prevent, alleviate or limit the harmful effect of overlap, inconsistency and ambiguity resulting from extra-territoriality in regulatory efforts to implement G20 commitments.”
According to ISDA, extra-territoriality is critical to the derivatives business, because counterparties that enter transactions with each other are often based in different parts of the world. But views differ on many levels. For instance, one recent disagreement between the US and the EU is whether exchange-traded derivatives need to be centrally cleared. The US believes they should while the EU feels that exchange trading is enough.
In its statement, the associations pushed policymakers to consult with each other in formation of legislation, and to “resolve differences” in the course of implementation. They further want to make sure that international financial regulatory approaches are based on consistency and mutual recognition. Unfortunately, that has not been happening. “The high policy debate is going in the wrong direction right now,” said Anthony Belchambers, the head of the UK’s Futures and Options Association. He was responding to comments from US Treasury Secretary Timothy Geithner suggesting the UK and other European regulators would ease up on their regulation to take business away from the US.
But if the issues are not resolved, the trade associations fear that among other worries, a fragmented view of financial market activity will make it difficult for regulators “to prevent build-up and concentration of systemic risk” and will also lead to legal uncertainty for internationally-active firms. Ultimately costs will rise for firms and their clients.
The eight associations signing the letter were: the Alternative Investment Management Association (AIMA), the European Banking Association (EBF), the Futures and Options Association (FOA), the Global Financial Markets Association (GFMA), the Investment Management Association (IMA), the International Swaps and Derivatives Association (ISDA), the London Energy Brokers’ Association (LEBA) and the Wholesale Market Brokers’ Association (WMBA).