CFTC Director of International Affairs Talks Cross-Border Regulation

In an interview conducted by CFTC Chief Market Intelligence Officer Andrew Busch, CFTC Director of International Affairs Eric Pan discussed cross-border regulation including the recent equivalence agreement between the U.S. and the European Union (“EU”).

Director Pan explained that regulatory reforms must be developed in a manner that does not fragment the cross-border market or cause significant disruptions. He highlighted deference as an important “cooperative” policy, explaining that “everyone should be responsible for their home market,” but, when jurisdictions are also regulating firms that do business in other jurisdictions, they “should defer to the regulatory authorities of those other jurisdictions.” Mr. Pan stated that regulators want to ensure that no duplicative or conflicting rules exist across jurisdictions. He asserted that regulators all wish to implement robust regulations without also imposing heavy compliance costs and unnecessary burdens.

On recent CFTC and European Commission (“EC”) cooperation efforts (equivalence decisions on margin requirements for uncleared swaps and a common approach for regulating trading platforms), Director Pan said the size of the two markets and complexity of the regulated areas makes the agreements particularly significant. He said that the regulators are not looking to “weaken regulation,” but instead to find the most effective way to deploy agreed-upon high standards. Mr. Pan warned against EU plans to facilitate central counterparty relocation in light of Brexit, saying that it could have consequences for both the United States and EU member nations.

Lofchie Comment: Mr. Pan’s interview is directed largely at an audience of European regulators. He carries a combined message of carrot (deference to European regulators as to home market regulation) and stick (don’t force central counterparties to move to continental Europe in the wake of Brexit). This carrot and stick approach reiterates the message previously delivered by CFTC Chair Giancarlo. See CFTC Chair Giancarlo Warns European Officials against Unilateral Changes to CCP RegulationCFTC Chair Giancarlo Advocates for Increased Cross-Border Deference.