Last week, the Financial Stability Board reported that five international jurisdictions have no authority at all to defer to the regulatory oversight of swaps transactions by other jurisdictions, and that while 14 jurisdictions have some authority for deference, this authority is more available in connection with the oversight of infrastructure providers (for example, trade repositories, clearing houses and exchanges) than market participants. The FSB has previously encouraged deference among different international regulators, claiming that “[d]eference—in part or in full—to another jurisdiction’s [swaps] regulatory regime, where appropriate, is an important tool for addressing some of the issues arising from differences in the regulatory reforms that jurisdictions undertake to meet the G20’s overall goals” regarding mandating central clearing and execution on organized trading facilities of standardized swap transactions. The FSB was established in 2009 as the successor to the Financial Stability Forum to help promote international financial stability and coordinate national financial regulatory authorities and international standard setting organizations. Its members include representatives from financial regulators from 18 countries and the European Union. The FSB’s report was based on a survey conducted of its 19 members. The jurisdictions claiming they had no ability for deference were Argentina, Brazil, China, India and Indonesia. The Commodity Futures Trading Commission reported it had among the most authority for deference. In connection with oversight of clearing houses, for example, it said that “the CFTC may exempt conditionally or unconditionally a derivatives clearing organization (DCO) for, registration for the clearing of swaps if the CFTC determines that the DCO is subject to comparable, comprehensive supervision and regulation by the appropriate government authorities in the home country of the DCO.”

My View: Language from regulators often includes exhortations regarding the need for international cooperation and deference. However, their actions don’t always reflect the same sentiment. The current delay by the European Commission to recognize US clearing houses as “qualified”—which is necessary to avoid very high capital charges to European-based banks accessing these facilities (potentially as soon as by December 15)—is not a good example of effective cooperation. Apparently the delay derives from the failure of the CFTC to approve customers of US futures commission merchants to trade swaps settled on non-CFTC registered European clearing houses that meet international stands—as has been permitted by the CFTC under its rules in connection with non-US futures transactions for decades. Surely this can be worked out once and for all, and not just punted to a later date. (Click here for a related story entitled “US, EU Regulators Hopes for Deal on Clearinghouse Oversight” in the September 19, 2014 Corporate & Financial Weekly Digest by Katten Muchin Rosenman LLP.)