Market Participants File Amended Complaint Challenging CFTC Cross-Border Guidance

The ISDA, SIFMA and the Institute of International Bankers (“IIB”) (together, the “Associations”) filed an amended complaint against the CFTC asserting that the CFTC’s Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations (“Cross-Border Rule”) and related actions were issued in violation of the Administrative Procedure Act. Each of the sides also submitted procedural motions: (i) the plaintiffs, seek expedited consideration of a motion for summary judgment, and (ii) the CFTC seeks the court’s delay in ruling on this motion pending the submission of a motion to dismiss.   

The lawsuit, originally filed on December 4, 2013, alleges that the CFTC unlawfully circumvented the requirements of the Administrative Procedures Act and the CEA by portraying its cross-border regulations as “guidance.”  The amended complaint reflects the eight “comparability determinations” issued by the CFTC on December 20, 2013, that rule on the extent to which compliance with the laws of six foreign nations by dealers based in those countries satisfies the CFTC’s requirements.  According to the amended complaint, each of the comparability determinations acknowledge that the Cross-Border Rule “established a recognition program” that allows market participants to comply with foreign requirements in place of complying with CFTC “rules”; i.e., not merely CFTC “guidance.” 

The complaint further alleges that the Cross-Border Rule’s “sweeping [global] extension” of the Dodd-Frank Title VII Rules has wide-reaching effects on the Associations’ member firms, the swaps market and the public at large by imposing costly and often duplicative registration, clearing, documentation and other requirements which discourage entities from engaging in transactions with persons in the United States.  In the amended complaint, the Associations charge the CFTC with ten counts of violations of the APA and request that the court vacate the Cross-Border Rule in its entirety. 

The motion hearing is set for January 14, 2014, although the CFTC is seeking to delay the hearing date.

Lofchie Comment:  Since the day that the CFTC issued its cross-border guidance, we have stated our belief that the guidance was issued in violation of the Administrative Procedure Act. (See relevant commentary dated July 19, 2013 and July 15, 2013.)

If the CFTC loses this case, it could be forced to return to square one in establishing its regulations relating to swaps since it will be required to reconsider the costs and benefits of many of its most significant adopted rules. This seems an incredible waste, given the time and effort spent by well intentioned agency personnel and those in the industry who tried to comply with the CFTC’s rules. This is unfortunate, but it would certainly achieve a better long-term result for the domestic and global economy. If the new Chairman and the incoming Commissioners to the CFTC are able to coordinate the rulemaking of the CFTC with that of the SEC, there is every reason to believe that starting anew would be better than building on top of the marshland of agency guidance.

See:  SIFMA v. CFTC Amended Complaint; SIFMA Motion for Summary Judgment; SIFMA v. CFTC Civil Docket; CFTC Motion to Hold in Abeyance; SIFMA Motion for Expedited Consideration of Summary Judgment.
Related news: 
Market Participants File Lawsuit Challenging CFTC Cross-Border Guidance for Being a Rule Adopted in Violation of the APA (December 4, 2013); CFTC Comparability Determinations for Six Jurisdictions and Related No-Action Letter (No-Action Letter 13-75) (December 20, 2013); CFTC Issues No-Action Relief for Dealers in Five Jurisdictions from Certain Entity-Level Internal Business Conduct Requirements (CFTC Letter 13-78) (December 23, 2013); CFTC Publishes Comparability Determinations (Fed. Reg.) (December 27, 2013).

 

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