Thursday, January 11, 2018

Senators stand behind CFTC Chairman in efforts to uphold equivalency agreement with the EC

By Brad Rosen, J.D.

CFTC Chairman J. Christopher Giancarlo has received the full support from U.S. Senate Committee on Agriculture, Nutrition, and Forestry Chairman Pat Roberts (R-Kan) and Ranking Member Debbie Stabenow (D-Mich) for his stated commitment to honor mutually recognized equivalency agreements regarding cross-border clearinghouses as set forth in a letter sent by the senators.

Less than two years ago, and prior to the United Kingdom’s 2016 referendum to leave the European Union (commonly referred to as “Brexit”), the CFTC and the European Commission (EC) reached a unanimous and bipartisan agreement on cross-border clearinghouse oversight. This equivalence agreement, the product of over three years of intense discussions between the CFTC and the EU authorities, resulted in strong oversight while still providing firms with the flexibility that is needed in the global derivatives marketplace.

Post-Brexit, the EC proposed a major overhaul of its financial services regulatory framework that threatened the 2016 CFTC-EC equivalence agreement, while at the same time empowered European regulators with broad and duplicative supervisory authority over U.S. clearinghouses.

In their letter, Roberts and Stabenow wrote, “Failure to abide by the terms of the 2016 CFTC-EC agreement would call into question the credibility of the process that has been undertaken cooperatively by the CFTC and the EC in recent years, particularly given the agreement was finalized less than two years ago.” They continued, “We support your efforts to ensure a universal solution that recognizes the respective supervisory authorities of the CFTC and the EC, and encapsulates the principles set forth in the CFTC-EC agreement. Disjointed regulatory activities will serve no market, and will only cause undue stress.”

The senators further noted, “In a recent speech, you stated that any unilateral change by European authorities would be a violation of trust and cooperation between the U.S. and Europe. We agree with that assessment. If the EC moves away from the 2016 CFTC-EC agreement, the CFTC should review the appropriateness of the exemptions and relief it has granted to foreign entities, including clearinghouses established in the European Union. The CFTC has existing authority to initiate such review, and we would support your efforts if you deem them appropriate and necessary.”

Chairman Giancarlo, in a statement responding to the senators’ letter, expressed his appreciation for their strong support and further noted, “Their letter expresses the critical importance of keeping in place the 2016 equivalence agreement ..." and that, “[r]egulatory and supervisory deference needs to remain the key principle governing how the CFTC and EU authorities work together on the supervision of US and EU CCPs.”