CFTC Extends No-Action Relief from Transaction-Level Requirements to Non-U.S. Swap Dealers (CFTC Letter 15-48) (with Lofchie Comment)
Commentary by Steven Lofchie
The CFTC Division of Swap Dealer and Intermediary Oversight, the Division of Clearing and Risk, and the Division of Market Oversight (collectively, the "Divisions") extended no-action relief to non-U.S. swap dealers from certain transaction-level requirements under the Commodity Exchange Act. The CFTC stated that in order to avoid market disruptions for their non-U.S. counterparties, non-U.S. swap dealers need sufficient time-limited relief to organize their internal policies and procedures to comply with the transaction-level requirements.
Prior to September 30, 2016, or the effective date of any other relevant CFTC action, the Divisions will not recommend enforcement action against a non-U.S. swap dealer (whether or not an affiliate of a U.S. person) for failure to comply with: (i) "any applicable transaction-level requirements with respect to a covered transaction if the covered transaction is not with a non-U.S. swap dealer; or (ii) if the covered transaction is with a non-U.S. swap dealer, (a) "any transaction-level requirement other than the multilateral portfolio compression requirements under Commission Regulation 23.503" or (b) "the swap trading relationship requirements under Commission regulation 23.504."
Commentary
The CFTC adopted its cross-border guidance as an interpretation and not a rule. The problem with the agency's avoidance of the proper rulemaking process is that it deprived itself and the industry of the opportunity to conduct legal analysis and obtain adequate market commentary. Unfortunately, when the CFTC came to the conclusion that its own guidance was flawed, it resorted to rulemaking through staff guidance. That was a lost opportunity to fix the problem either by initiating a proper rulemaking process or by providing additional CFTC-level guidance. That the staff level guidance has been delayed so often is indicative of an ill-considered rulemaking process. The long delay is further evidence of how little the CFTC gained by its avoidance of the statutory requirements for rulemaking. Today's no-action extensions gives the CFTC another opportunity to rethink its strategy and go through proper rulemaking.