The CFTC submitted a Memorandum responding to a Complaint filed in federal district court by three financial industry trade associations – ISDA, SIFMA and the Institute of International Bankers (“IIB”) (together, the “Associations”) – challenging the legality of the CFTC’s Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations (“Cross-Border Guidance” or “Guidance”). In addition to arguing that the plaintiffs lack standing and that their challenge is not ripe, the CFTC contends in its latest response that the 2010 Dodd-Frank law “unambiguously” states that the agency’s rules apply to overseas activities with a “sufficient” nexus in the United States.
In response to the contention that the Guidance is in reality a rule that was not issued in compliance with the Administrative Procedure Act, the Memorandum states that: 1) there is no requirement that the CFTC implement Dodd-Frank’s cross-border authority by rulemaking, and 2) the CFTC reasonably chose not to issue a rule, but instead issued a general statement of policy that is not reviewable under the APA. The CFTC Memorandum also states that the CFTC’s interpretation of CEA Section 2(i) (the provision in the CEA that provides for cross-border authority) is reasonable, and that it properly considered the costs and benefits and public comments associated with the Guidance.
Lofchie Comment: That the CFTC’s Guidance is actually a “rule” issued in contravention of the Administrative Procedures Act is a widely held view.
With regard to a “race to finish” rulemaking, a loss on this case will be very damaging to the CFTC, as it will be forced to reexamine many of the rules that it had raced to complete. Notwithstanding the short-term damage that would be done to the CFTC’s rulemaking by losing this case, in many ways, the CFTC could be better off with a loss. If it wins the case, it will have done so by conceding that the Guidance is not binding on anyone. This means that, in every future CFTC enforcement action that has a cross-border element, the CFTC will be forced to re-argue how its nonbinding guidance applies to that action. Among other consequences, this would be a great waste of the agency’s resources. Perhaps even more significantly though, losing the case might create an avenue that would allow the CFTC to revisit many of its recent and poorly considered rules.
See: CFTC Memorandum.
Related news: Market Participants File Lawsuit Challenging CFTC Cross-Border Guidance for Being a Rule Adopted in Violation of the APA (December 4, 2013); Market Participants File Amended Complaint Challenging CFTC Cross-Border Guidance (January 8, 2014); Chamber of Commerce Submits Amicus Brief Regarding Lawsuit against CFTC Cross-Border Rule (February 5, 2014); SIFMA and AFME Issue Statement on Transatlantic Financial Regulation Negotiations (February 19, 2014).