The CFTC and SEC (the Commissions) must adopt a large number of regulations to implement the regulatory scheme that Dodd- Frank establishes for swaps and security-based swaps (collectively, swaps).
Recently, for example, the Commissions issued a joint proposal to clarify the circumstances under which financial products, including insurance contracts, would or would not be swaps. Under the proposal, most insurance contracts would not be swaps. This is highly significant, because Dodd-Frank’s regulatory scheme for swaps is largely incompatible with insurance regulation. Indeed, Dodd-Frank specifically prohibits states from regulating swaps as insurance. The comment period on this joint proposal ended on July 22 and the Commissions have not yet taken final action.
The fact that the Commissions have not yet taken final action on this and other important measures to implement Dodd-Frank’s regulatory scheme for swaps has caused numerous problems. Among other things, Dodd-Frank made July 16, 2011 the date on which swaps are generally required to begin complying with the new regulatory scheme, which has in many cases proved impossible or impractical. For example, issuers of some of the insurance and other financial products addressed in the abovementioned joint proposal do not yet know even whether those products will be considered to be swaps for this purpose.
The Commissions have each promulgated temporary exemptions and taken other actions to ameliorate such problems. For example, shortly before the July 16 deadline, the CFTC issued an order that, among other things, provides a temporary exemption from requirements under the Commodity Exchange Act that go into effect on that date but that depend on the definition of swap. This CFTC relief extends until the earlier of the date the CFTC takes final action on the definition or December 31, 2011.