CFTC Commissioner Rostin Behnam advocated for international regulatory cooperation to address the risks posed by benchmark reforms, margin, Brexit, cross-border regulation and FinTech. In a speech at the 2018 ISDA Annual Japan Conference, Mr. Behnam weighed in on the following:
Benchmark Reforms. Mr. Behnam emphasized the importance for global regulatory authorities to work with one another as well as private sector entities to facilitate the transition away from various inter-bank offer rates. He praised the work being done by, among others, the UK FCA, Japanese regulators, and, in the United States, the public-private partnership of the Alternative Reference Rates Committee ("ARRC"). Mr. Behnam encouraged market participants to examine LIBOR-fallback language in existing contracts and highlighted the work of market participants and regulators to develop alternative contract language to facilitate this approach. He also broadly encouraged participants to transact in Secured Overnight Financing Rate ("SOFR")-referenced derivatives markets, noting that a move to SOFR could help avoid the consequences of "zombie LIBOR." Mr. Behnam noted that, while he is aware of "some preference" for continuing with LIBOR, regulators are generally "anticipating a clear and certain break from LIBOR." He also highlighted the work of the CFTC Market Risk Advisory Committee, in particular its Interest Rate Benchmark Reform Subcommittee. He expressed his hope that the subcommittee would "complement" the work of the ARRC.
Initial Margin. Mr. Behnam stated that the full phase-in of initial margin requirements in 2020 raises "a number of potential challenges for the marketplace." He stressed that the CFTC and U.S. bank regulators are listening to concerns of market participants about 2020 implementation and are gathering information to understand the situation to "avoid catastrophe." He highlighted the work and recommendations of, among others, ISDA and SIFMA, and while not committing to their suggested approach, said that the CFTC and other regulators would "bundle" efforts toward "appropriate recommendations and guidance."
Cross-Border Regulation. Mr. Behnam said that CFTC Chair J. Christopher Giancarlo's recent white paper announcing his vision of the agency's approach to applying its statutory authority over swaps activities to cross-border activities merely reflected his ambitions and views. Mr. Behnam distanced himself from the white paper, stating that he thinks the CFTC should build its internal consensus in accordance with formal, statutory procedures while considering the needs of and affording deference towards global regulators. He noted that the timing for turning the white paper proposals into formal rulemaking is "unclear," and noted that Mr. Giancarlo had suggested that it would be "several quarters" for such a sea change to progress. Mr. Behnam said that the sufficient time was needed, expressing his view that aspects of Mr. Giancarlo's proposals would depart from CFTC policy and "may even conflict with our governing statute and prior [CFTC] interpretations thereof or lead to gaps in certain protections afforded to U.S. persons transacting overseas."
FinTech. Mr. Behnam urged regulators to approach FinTech with "an open mind and a healthy respect for [regulators'] role in the markets."