CFTC Chair J. Christopher Giancarlo offered recommendations for rethinking the agency's application of its swaps rules to cross-border activities. He said he intends to direct the CFTC staff to develop proposed rules governing the cross-border application of the CFTC swaps rules.
In a speech in London, Mr. Giancarlo highlighted problems with the current CFTC approach, offered a series of principles to guide the agency's assertion of authority over cross-border activities, and outlined a series of more specific recommendations.
Mr. Giancarlo described the current CFTC approach to cross-border regulation as "over-expansive, unduly complex, and operationally impracticable." He criticized this approach for (i) being set forth in "guidance" rather than rules, (ii) taking an overly broad view of what constitutes a "direct and significant connection" with U.S. commerce, (iii) being "conceptually inconsistent" in looking at "U.S. entities" for activities abroad and "territorial" in looking at activities in the United States, (iv) taking a "somewhat arbitrary" approach to substituted compliance determinations, and (v) failing to distinguish between rules that address systemic risk and those that address markets and trading matters.
In developing proposed rules, Mr. Giancarlo said the CFTC should:
recognize the distinction between swaps reforms intended to alleviate cross-border systemic risk and reforms designed to address specific trading practices that are suitable for tailoring to jurisdictional trading conditions;
pursue multilateralism with respect to swaps rules that mitigate systemic risk;
be a rule maker in overseeing U.S. markets and act with deference towards non-U.S. markets; and
act to encourage the adoption of comparable swaps reform regulation in non-U.S. markets that have not adopted swaps reform for any significant swaps trading activity.
Mr. Giancarlo offered a preview of a forthcoming white paper that will contain policy recommendations, which will include:
expanding the use of the CFTC's exemption authority for non-U.S. central counterparties ("CCPs") that clear swaps but do not pose any risk to the U.S. financial system if a CCP is subject to "comparable, comprehensive supervision and regulation" in its home country;
exempting non-U.S. trading venues subject to comparable regulation from registration as swap execution facilities; and
excluding, from the de minimis determination for swap dealer registration, swaps entered into by non-U.S. persons with (i) non-U.S. persons that are registered swap dealers and (ii) non-U.S. consolidated subsidiaries of U.S. entities.