CFTC Chair J. Christopher Giancarlo raised significant concerns related to European CCP regulation in the wake of the UK’s Brexit referendum, and encouraged global regulatory cooperation to enhance the vitality, liquidity and durability of the global financial markets. His remarks were delivered at the Global Forum for Derivatives Markets Bürgenstock Conference in Lucerne, Switzerland.
Mr. Giancarlo highlighted the importance of the collective G-20 commitment, made at the Pittsburgh summit, to work together to support economic recovery through implementing global standards contained in the “Framework for Strong, Sustainable and Balanced Growth.” Mr. Giancarlo restated a desire to show deference to home-country regulation rather than “regulatory uniformity,” particularly in matters of market practices, transparency and price formation. He praised prior cooperation between the CFTC and the European Commission (“EC”) on derivatives reform, specifically in reaching an agreement on CCP equivalence (see previous coverage).
Commenting on a recent EC proposal to amend European Market Infrastructure Regulation to introduce a CCP location policy, Mr. Giancarlo acknowledged that Brexit has spurred various regulatory challenges, but cautioned that any unilateral change to the CFTC-EC Equivalence Agreement would be viewed as a violation of trust between the U.S. and Europe:
“If Brexit is indeed the trigger for a new approach in Europe regarding the supervision of cross-border CCPs, then it must be an approach developed with the cooperation and support of the CFTC – cooperation and support the CFTC is prepared to offer. If the EU must reconsider its approach to cross-border supervision of systemically important CCPs, then we cannot have piecemeal and contradictory rulemaking. Instead, we should together strive for a comprehensive and universal solution that supports strong cross-border markets, recognizes and builds upon the strengths of our respective supervisory programs, and preserves as much as possible the basic tenets of the CFTC-EC Equivalence Agreement.”
Mr. Giancarlo committed to pursue swaps reforms, and promised that a CFTC Swaps Reform Version 2.0 framework will improve on earlier efforts and remedy some of the deficiencies presented by the previous framework. He underscored LabCFTC as a demonstration of CFTC commitment to keeping pace with financial innovations and corresponding challenges in monitoring and overseeing financial markets, and said that he remains dedicated to working with other regulators to “foster safe, sound and vibrant” global markets.
Lofchie Comment: In a somewhat more assertive tone than he struck in yesterday’s remarks, Chair Giancarlo demonstrates awareness that he can best advance U.S. economic interests neither by bullying Europeans nor by acquiescing to European regulations that disadvantage U.S. firms.