European Commission Adopts First "Equivalence" Decision for Central Counterparty Regulatory Regimes (with Lofchie Comment)

The European Commission adopted its first "equivalence" decision for the regulatory regimes of central counterparties ("CCPs") in Australia, Hong Kong, Japan and Singapore.

The CCPs in these jurisdictions will be able to obtain recognition in the EU, and therefore can be used by market participants to clear standardized OTC derivatives as required by EU legislation, while remaining subject solely to the regulation and supervision of their home jurisdiction. According to the press release, the details of the rules may differ, but international regulators are pursuing the same objective: to contribute to financial stability by promoting the use of CCPs that are subject to robust prudential requirements.

In his prepared statement, EU Commissioner Michel Barnier said this: "Today's decision shows the EU is willing to defer to the regulatory frameworks of third countries, if they meet the same objectives as the EU rules." He added that members of the EU "have been working in parallel on assessing twelve additional jurisdictions," including the SEC and CFTC in the United States, and that finalizing those assessments is a "top priority."

Lofchie Comment: The exclusion of the United States sends a clear message that U.S. regulators can either work with other global regulators or go at it alone while other regulators cooperate. Presumably, U.S. regulators will choose the first path. If they do, much of the credit goes to EU Commissioner Barnier, who has been steadfast in asserting that the EU would not concede to a subordinate relationship with the CFTC.

See: European Commission Press Release.Related news: EU Commissioner Barnier Seeks U.S. Swaps Deal (with Lofchie Comment) (September 15, 2014); EU Commissioner Barnier to Accept Clearing Rules from Five Countries outside EU, but Not the United States (with Lofchie Comment) (June 30, 2014).