Monday, October 10, 2016

CFTC signs cooperation agreement with U.K. FCA on supervision of cross-border firms

By Lene Powell, J.D.

The heads of the CFTC and U.K. Financial Conduct Authority (FCA) signed a Memorandum of Understanding (MOU) regarding information sharing and cooperation in the supervision of certain cross-border regulated firms. The MOU addresses issues of common regulatory concern, including initial application for registration and ongoing supervision of covered firms.

Signed by CFTC Chairman Timothy Massad and FCA Chief Executive Andrew Bailey on October 6, 2016, the MOU complements existing cooperation agreements and notes the particular importance of close cooperation in crises threatening systemically important firms.

Covered firms. In the U.S., covered firms include CFTC-registered swap dealers (SDs) and major swap participants (MSPs), as well as applicants for registration. U.K. covered firms include entities authorized and supervised by the FCA in accordance with European single market directives in Article 2(8) of EU Regulation No. 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR).

Cooperation. According to the MOU, cooperation will be most useful in issues of common regulatory concern, including initial application for registration as SD or MSP, ongoing supervision and oversight of covered firms, and regulatory or supervision actions by the CFTC or FCA that may affect the entity's operation in the jurisdiction of the other authority.

The MOU provides for:
  • Event-triggered notifications for certain events, including regulatory changes, material events that could affect a firm's financial operational stability, and enforcement actions and significant regulatory actions against a covered firm;
  • Request-based sharing of information relating to a firm's regulatory filings and financial and operational condition, as well as regulatory reports on firms such as examination reports;
  • Procedures for on-site visits and requests for information;
  • Periodic meetings.
Treatment of non-public information. Although the CFTC and FCA do not intend the MOU specifically as a means to gather information for law enforcement purposes, non-public information provided under the MOU may be used in investigations and enforcement actions in accordance with use and confidentiality provisions in previous MOUs. The regulators must keep non-public information confidential, and there are restrictions on onward sharing. The agreement provides for procedures for notification and consent for further sharing.

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