By Anne Sherry, J.D.
In an op-ed published in the French financial daily Les Echos, CFTC Chairman Chris Giancarlo stressed that regulatory deference will be the path forward to cross-border supervision of central counterparties. Giancarlo noted in particular that in the wake of the financial crisis, G-20 leaders committed at the Pittsburgh Summit to work towards consistent, rather than identical, implementation of global standards. Mutual deference to foreign regulatory frameworks follows from this pact, he wrote.
The CFTC’s regulatory framework for futures gives non-U.S. firms direct access to U.S. customers provided they comply with the rules of their home jurisdiction. The agency has some similar provisions with respect to non-U.S. swaps dealers and major swaps participants, and recently allowed certain E.U.-based CCPs seeking to operate in the U.S. to comply with corresponding E.U. regulatory requirements.
Giancarlo wrote that this arrangement allows market participants to hedge risks in efficient and resilient global markets and promotes financial stability by holding CCPs based in different jurisdictions to the same high standards. It also allows the CFTC to “work smarter, not harder” under budget constraints. In addition to supporting the cross-border activities of actors in the financial markets, deference arrangements avoid fragmentation, protectionism, and regulatory arbitrage.
The Commission’s staff is exploring how to incorporate deference into other parts of the regulatory framework and form stronger alliances with other regulators, Giancarlo added. He acknowledged that in some circumstances where the CCP is systemically important in a few jurisdictions, deference may not be possible. In those cases, joint supervision between the applicable authorities may be a better solution.