Foreign Governments – Comments on ET Guidance

Australian Securities and Investments Commission, et al.: The Australian Securities and Investments Commission, Hong Kong Monetary Authority, Monetary Authority of Singapore, Reserve Bank of Australia and Securities and Futures Commission, Hong Kong, submitted a joint comment letter to CFTC Chairman Gary Gensler. The organizations discussed their concern that the CFTC Proposed Guidance (subjecting non-U.S. persons to the swap dealer or major swap participant registration requirements, as well as entity-level and transaction-level requirements) would have the following consequences:

  • Affected non-U.S. persons will have to comply with two sets of regulations, which may be overlapping and conflicting, imposed by the U.S. and individual non-U.S. regimes. This is compounded by the lack of clarity and specificity in a number of areas of the Proposed Guidance.
  • Potential market disruption or fragmentation, with consequently increased risks to systemic stability and market liquidity in our markets, may arise as market participants are compelled to change their business models or even withdraw from certain businesses, all within a relatively short period of time. The impact from any resulting (likely significant) increase in compliance costs and the potential reduction in liquidity of OTC derivatives markets should not be underestimated.

Comissao de Valores Mobiliarios (CVM): CVM outlined its assessment of the proposed interpretive guidance, addressing registration as a Swap Dealer/Major Swap Participant, Substituted Compliance, and privacy and data-protection issues.

European Commission (EC) Letter: The EC argued that the guidance requires further review, especially the significant potential risk attached to the broad definition of a U.S. person, which may lead to the duplication of laws, and to irreconcilable conflicts of laws, for market operators.

Financial Services Agency, Japan & Bank of Japan: Financial Services Agency, Japan & Bank of Japan, raised their concerns about the application of registration and transaction requirements to operations of foreign financial institutions established outside the U.S. In addition, they addressed three specific requests to amend the proposals, including further extension of the application of substituted compliance, deferral of application of CFTC regulations with respect to non-U.S. persons, and the exclusion of certain transactions from the calculation of swap transactions in regard to the de minimis threshold for non-U.S. persons.

Financial Services Authority (UK): FSA suggested that the CFTC delay imposing the registration requirement on non-U.S. persons until a defined period (perhaps six months) after the CFTC has finalized its cross-border guidance. This would allow firms time to interpret the guidance and make an informed and considered decision on the appropriate entities to register.

French Ministry of Economy and Finance; Autorite de controle prudentiel (ACP); Autorite des marches financiers (AMF): The French Ministry of Economy and Finance expressed support for the concept of substituted compliance related to non-U.S. Swap Dealers or non-U.S. Major Swap Participants. However, the Ministry also discussed how the mere extension of the scope of registration for Swap Dealers or Major Swap Participants to non-U.S. entities would create regulatory and oversight overlaps, which could cause serious concerns.

Swiss Financial Market Supervisory Authority (FINMA): FINMA raised a concern as to the potential CFTC margin requirements for swap deals that are not cleared by a central counterparty. In particular, if such margin requirements are applied to a Swiss-based entity, this may duplicate the requirements and possibly conflict with international and domestic capital adequacy rules, thereby leading to prudential inefficiencies.

Additional Letters: Available Here.

View Release in full here (links externally to CFTC website).