Eight international trade associations, including the International Swaps and Derivatives Association, the European Banking Federation and the Futures and Options Association, have sent a joint letter to Michel Barnier, the EU Internal Markets Commissioner, and Timothy Geithner, the Secretary of the US Treasury Department, urging them to focus on greater international coordination in the preparation and implementation of the new regulations on derivatives to be introduced across the G20 jurisdictions. The message of the trade associations reflects two main concerns. First, the associations mentioned that the interaction of the new US and EU rules has the potential to create material risk due to legal uncertainty and increased extra-territorial challenges. Second, according to the joint letter, the recent comments from US and EU lawmakers on extra-territorial issues have not sufficiently reflected a commitment to avoiding the creation of conflicts, regulatory arbitrage, and unnecessary burdens for market participants. On a positive note, the trade associations said they “[b]elieve that there remains considerable scope both in the Dodd-Frank Act and EU regulation to prevent, alleviate or limit the harmful effects of ... overlapping, inconsistent and ambiguous rules.” The letter suggests a number of areas where increased international co-ordination could combat potential problems, for instance:
- Rules for licensing significant participants in the global swaps market should recognise regulations already imposed on them by their home jurisdictions;
- Potential overlap and conflict between the rules of different jurisdictions should be avoided; and
- Standards should be agreed upon which provide for the equivalence or recognition of CCPs across the jurisdictions they transact in.
The trade associations have warned that failure to address these issues could not only have a ‘significant adverse effect’ on companies but also on the wider economy, not least through increasing the cost of transactions. In particular, they have highlighted that the lack of coherent regulation across jurisdictions could give rise to the negative effects associated with protectionism, while also making it difficult for regulators to detect and/or prevent a build-up of systemic risk. Furthermore, the associations welcomed the recent establishment of the Trans-Atlantic regulatoryworking group. The joint letter concludes by supporting the concept of additional governmentindustry interaction so EU and US regulators will have the benefit of industry knowledge across multiple jurisdictions.