In Letter to CFTC, EU and Japanese Finance Ministers Urge Cross-Border Harmonization of Derivatives Regulation

In a letter to CFTC Chair Gary Gensler, the Finance Ministers of France, Japan, the EU and the UK urged the CFTC to enshrine the principle of equivalence or substituted compliance in CFTC cross-border derivatives regulations so that US investors wherever located can transact with non-US entities using a proportional substituted compliance regime. Citing G20 pronouncements on cross-border regulatory harmonization, the Ministers said that there should be collective cross-border derivatives regulations consistent with equivalence or substituted compliance with respect to partner jurisdictions and reliance on the regulation and oversight within those jurisdictions should be used to avoid the fragmentation of global financial markets. The letter was signed by EU Commissioner for the Internal Market Michel Barnier, Japanese Financial Services Minister Ikko Nakatsuka, French Finance Minister Pierre Moscovici, and UK Chancellor of the Exchequer George Osborne.

The G20 has continually and consistently emphasized since 2009 that domestic derivatives legislation and regulations alone does satisfy the goals set out by leaders and that derivatives regulations need to be implemented as a harmonized way that does not add to market fragmentation. The Ministers said that it is very important that the regulation of the clearing and electronic trading of standardized OTC derivatives is not done in a non-discriminatory way.

The derivatives market has allowed financial counterparties across the globe to come together and conduct more effective risk management and support economic development. At a time of highly fragile economic growth, the Ministers believe that it is critical to avoid taking steps that risk a  withdrawal from global financial markets to less efficient regional or national markets. While recognizing the need for the CFTC and other US regulators to satisfy themselves on the adequacy of derivatives regulation in non-US jurisdictions, the Ministers urged the CFTC to take the time to ensure that US rulemaking works globally as well a domestically before finalizing or enforcing any regulatory deadlines.