EU Commissioner for Internal Market and Financial Services Michel Barnier said he intends to propose that the European Commission (“EC”) adopt “equivalence” decisions that will allow central counterparty clearing houses (“CCPs”) from five countries outside the European Union to clear EU derivatives trades. The allowed countries will be Japan, Singapore, Australia, Hong Kong and India.
Regarding the absence of the United States from the list, Commissioner Barnier noted that, if the CFTC gives effective equivalence to third-country CCPs, he is confident that the list will include the United States soon.
CFTC Commissioner Scott O’Malia wrote a letter to Commissioner Barnier on May 6, 2014, urging him to proceed with finding the U.S. regulatory regime equivalent under EMIR so that ESMA may recognize U.S. CCPs. Commissioner O’Malia stated that, although “there may be some nominal differences” between the regimes, the rules comply with the CPSS-IOSCO Principles for Financial Market Infrastructures and are “essentially identical as a result of the collaboration, coordination, and cooperation between the CFTC and EC.”
Lofchie Comment: Here are the key points in the Barnier statement:
“I intend to propose shortly that the European Commission adopt ‘equivalence’ decisions that will allow CCPs from five countries outside the EU – Japan, Singapore, Australia, Hong Kong and India – to clear EU derivatives trades. This will be done in full deference to the rules and supervisory systems of those countries. . . . If the CFTC also gives effective equivalence to third country CCPs, deferring to strong and rigorous rules in jurisdictions such as the EU, we will be able to adopt equivalence decisions [recognizing U.S. clearing corporations] very soon.”
To put it more bluntly, the European Union has no intention of allowing the U.S. regulators to dictate how European regulators should regulate European financial institutions or financial conduct in Europe.
Credit should be given to Commissioner O’Malia for reaching out to Commissioner Barnier and trying to avoid this result, but there is a history of contentiousness between the CFTC under former Chairman Gensler and the European Union. That history apparently resulted in the EU taking a “show me” approach, which could not be overcome by Commissioner O’Malia’s letter, as he does not speak as chairman of the agency. Commissioner Barnier’s response should be taken as a caution to those U.S. regulators who believe that they can dictate global regulation. Other regulators can and will push back. The potential danger of this dispute not being resolved is nothing short of a trade war.