Chamber of Commerce Submits Amicus Brief Regarding Lawsuit against CFTC Cross-Border Rule
Commentary by Bob Zwirb
The U.S. Chamber of Commerce (the "Chamber") submitted an amicus brief in support of the ISDA, SIFMA and the Institute of International Bankers' ("IIB") (together, the "Associations") motion for summary judgment in the case filed against the CFTC's Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations (the "Cross-Border Rule").
According to the Chamber's amicus brief, the CFTC Cross-Border rule reflects a troubling pattern of administrative agencies' labeling their regulations as "policy statements" or "guidance" to circumvent the procedural requirements of legislative rulemaking. The Chamber stated that the CFTC sought an "advantage" by proceeding to "issue or amend its real rules, i.e., its interpretative rules and policy statements, quickly and inexpensively without following any statutorily prescribed procedures," and with the hope of evading judicial review.
The Chamber went on to state that the Cross-Border Rule is a substantive legislative rule, not a mere statement of policy, despite the CFTC's use of the modifier "generally". Additionally, the Chamber noted that even if the CFTC were correct in characterizing the Rule as a policy statement, such a statement would still qualify as a "regulation" under the CEA. The Chamber said that even if the Cross-Border Rule were not a regulation, the CFTC would contemplate the extraterritorial application of its Title VII regulations; therefore, it had a duty to evaluate all costs and benefits (domestic and extraterritorial) of those regulations before promulgating them.
The Chamber concluded by stating that the CFTC has impermissibly converted a statutory prohibition on extraterritorial swaps regulation, with limited exceptions for certain activities, into a warrant to engage in the unprecedented status-based regulation of foreign financial institutions and transactions.
See: Chamber of Commerce Amicus Curiae.
See also: SIFMA Statement and Declarations Regarding Standing; SIFMA Opposition to CFTC Motion to Hold in Abeyance; CFTC Motion to Hold in Abeyance; SIFMA Motion for Expedited Consideration of Summary Judgment; SIFMA v. CFTC Amended Complaint; SIFMA Motion for Summary Judgment; SIFMA v. CFTC Civil Docket.
Related news:Market Participants File Statement to Explain Their Standing in Lawsuit Challenging CFTC Cross-Border Guidance (January 28, 2014); Market Participants File Opposition to CFTC's Motion to Delay Judgment in Lawsuit Challenging CFTC Cross-Border Guidance (January 16, 2014); Market Participants File Amended Complaint Challenging CFTC Cross-Border Guidance (with Zwirb and Lofchie Comments) (January 7, 2014); Market Participants File Lawsuit Challenging CFTC Cross-Border Guidance for Being a Rule Adopted in Violation of the APA (with Lofchie Comment) (December 4, 2013); CFTC Commissioner O'Malia Dissents from CFTC Cross-Border Guidance Statement (with Lofchie Comment) (July 18, 2013); CFTC Approves Cross-Border Guidance and Exemptive Order (with Lofchie Comment) (July 12, 2013).
Commentary
The Chamber's amicus brief details a number of administrative shortcomings that we have highlighted previously, e.g., the CFTC's issuance of a binding rule of general applicability in the form of "guidance," its failure to follow the APA procedures intended for rulemaking, and its failure to assess the costs and benefits of these requirements as required by Section 15 of the CEA. The amicus brief criticizes the CFTC for its use of the modifier "generally" 193 times in the Guidance in an apparent effort to get around APA rulemaking requirements and, thus, have it both ways in terms of the binding nature of such guidance – e.g., the Commission "would generally interpret the term 'U.S. person' to include also a legal entity that is not incorporated in the United States if it has its 'principal place of business' in the United States."
From a policy perspective, the brief makes two important points. First, echoing a point made by Commissioner O'Malia, it criticizes the CFTC for interpreting a statutory provision (CEA Section 2(i)) intended to limit the agency's extraterritorial authority (to activities having a direct and significant connection with the U.S.) as a tool to expand such authority. This liberal construction, according to the Chamber, allows the CFTC "to regulate even the wholly foreign swaps transactions . . . with foreign counterparties regardless of whether those foreign swaps activities have any direct and significant connection with U.S. swaps activities or effect on U.S. commerce."
Second, even more fundamentally, the Chamber argues that the CFTC's Cross-Border Rule "will jeopardize the participation of foreign entities in swaps transactions involving U.S. entities and certain of their non-U.S. affiliates . . . [and] competitively disadvantage U.S. companies and affiliates by restricting liquidity in various foreign markets, forcing them to find new counterparties, and ultimately increasing the costs of transactions that they had previously executed with foreign entities."