A joint report from the SEC and the CFTC says it’s too early to see gaps are in global regulatory coordination.
The SEC and CFTC said it’s too early to know where the gaps are in its coordination with international regulators on OTC derivatives rules. In the meantime, the two agencies said they were committed to working with international regulators in the coordination effort.
“The G-20 leaders have agreed to the OTC derivatives commitments, but it is still too early to determine precisely where there is alignment internationally and where there may be gaps or inconsistencies,” the two regulators said in their recently released Joint Report on Swap Regulation. “The Commissions will continue to monitor global reforms and are committed to working closely with their international counterparts in this effort.”
But coordination so far has been rocky. And what coordination gaps that may exist have many worried that end-users will engage in regulatory arbitrage between countries with different rules. One sticking point has been that the US believes all standardized derivatives should be centrally cleared. However, European regulators believe that exchange trading is enough. Also, Dodd-Frank includes the Volcker Rule, which bans proprietary trading by banks; the rule does not exist in Europe. Another area of uncertainty are “third country” provisions in European Market Infrastructure Regulation (Emir) and similar provisions in Dodd-Frank. However, where it is unclear is to what extent US and European rules apply beyond their borders.
Back in the spring of 2011, there was a heated exchange between US Treasury secretary Tim Geithner and EU officials over the issue. Secretary Geithner had suggested the UK and other European regulators might ease up – use a “light touch” – on their regulation to take business away from the US.
“The high policy debate is going in the wrong direction right now,” Futures and Options Association Chief Executive Anthony Belchambers said at the time. He added that the EU and the US needed to “get close together and … stop sound bites floating across the water in the way they do from both sides.”
OTC derivatives rules coordination isn’t the only area where there are worries over rules arbitrage. Today marks the final day of a comment period for a proposal by the US Fed and other regulators on increasing the risk weights on securitized assets as well as alternative standards of creditworthiness to be used in place of credit ratings. Critics feel the risk rules are at cross purposes with Basel mandates (see related story here).
The SEC and CFTC must coordinate with Emir, Markets in Financial Instruments Directive (Mifid), as well as a related regulation called Mifir, among others.