EC and CFTC announce a path forward on cross-border regulation of OTC derivatives

On 11 July 2013, the Commodity Futures Trading Commission (CFTC) and the European Commission (EC) announced a high-level joint understanding (referred to in the announcement as the ‘path forward’) regarding the approach to the cross-border regulation of over-the-counter (OTC) derivatives. The announcement comes one day before the CFTC is scheduled to hold a highly anticipated open meeting to consider its final cross-border guidance and associated phase-in for compliance.

To address market participants’ concerns that cross-border transactions in derivatives could result in duplicative, conflicting or inconsistent regulatory burdens, and to reduce the incentive to engage in regulatory arbitrage, the CFTC and the EC have generally agreed that the applicable regulators should, where appropriate, defer to the regulatory requirements in another jurisdiction when it is ‘justified’ by the quality of the regime in that jurisdiction. At the same time, the CFTC and the EC are focused on ensuring that their co-ordinated cross-border approach to regulating derivatives does not permit overseas guaranteed affiliates and branches of US and European Union persons to operate outside of their collective regulatory regimes.

While the announcement is light on details, it does contain certain statements that are noteworthy…

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