CFTC issues substituted compliance determinations for six jurisdictions

On 20 December 2013, the Commodity Futures Trading Commission (CFTC) issued a series of comparability determinations for certain swap dealer (SD) and major swap participant (MSP) business conduct requirements included in the Entity-Level Requirements with respect to the law and regulations applicable in Australia, Canada, the European Union (EU), Hong Kong, Japan and Switzerland. The Division of Market Oversight also issued no-action relief from certain reporting requirements under parts 451 and 462 of the CFTC regulations (collectively the ‘SDR Reporting Rules’) under CFTC Letter No. 13-75. The Division of Swap Dealer and Intermediary Oversight (DSIO) also issued time-limited no-action relief from certain Entity-Level Requirements under CFTC Letter No. 13-78. The substituted compliance determinations were adopted by the commissioners in a closed-door voting session and mark the culmination of a collaborative process with foreign financial regulators and market participants. Allen & Overy has actively participated in these discussions, particularly on behalf of SDs based in the EU and Japan.

Section 2(i) of the Commodity Exchange Act (CEA) provides the basis for the CFTC’s extraterritorial application of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under section 2(i), provisions of the CEA relating to swaps generally do not apply to activities outside the US unless those activities have a direct and significant connection with US commerce or contravene the CFTC’s anti-evasion rules.

The CFTC has interpreted the cross-border applicability of the Dodd-Frank Act in its Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations. The Cross-Border Guidance introduces the concept of substituted compliance. Where the CFTC determines that the law of a non-US SD’s or MSP’s home jurisdiction is comparable with the CFTC’s requirements, the non-US SD or MSP may substitute compliance with the requirements of its home jurisdiction in lieu of the relevant CFTC requirements…

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