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CFTC Seeks Comment on Approval of Substituted Compliance for UK-Regulated Swap Dealers

"Mutual understanding and respect for partner regulators in other countries advances the Commission’s goal of setting a global standard for sound derivatives regulation, enhances market stability, and is also deeply rigorous, reflecting the Commission’s commitment to safe swaps markets."
CFTC Commissioner Kristin N. Johnson
"Mutual understanding and respect for partner regulators in other countries advances the Commission’s goal of setting a global standard for sound derivatives regulation, enhances market stability, and is also deeply rigorous, reflecting the Commission’s commitment to safe swaps markets."
CFTC Commissioner Kristin N. Johnson

The CFTC solicited public comments on a proposed comparability determination and related Order for certain CFTC-registered swap dealers domiciled in the United Kingdom ("UK") and subject to prudential supervision by the UK Prudential Regulation Authority ("PRA").

Based on an application by the Institute of International Bankers, the International Swaps and Derivatives Association, and the Securities Industry and Financial Markets Association, the CFTC would determine whether non-bank swap dealers based in the United Kingdom that are in compliance with UK capital and financial reporting rules, should be deemed to be in "substituted compliance" with the CFTC's capital and financial reporting rules.

The comparability determination pertains to the following firms:

  • Citigroup Global Markets Limited,
  • Goldman Sachs International,
  • Merrill Lynch International,
  • Morgan Stanley & Co. International Plc,
  • MUFG Securities EMEA Plc, and
  • Nomura International Plc

Public comments are due by March 24, 2024, at which time the CFTC may refine its determination.

CFTC Statements

Commissioner Caroline D. Pham highlighted the importance of alignment with international standards and promoting global market stability and economic growth. She emphasized adherence to principles of being outcomes-based, risk-sensitive, transparent, cooperative and flexible, which she believes are crucial for managing risks in international capital flows.

Commissioner Christy Goldsmith Romero emphasized the crucial role of strong capital requirements for financial stability and called for ongoing vigilance in light of the PRA's new economic mandate. She also stressed the value of public feedback in assessing deviations from the CFTC’s capital requirements.

Commissioner Kristin N. Johnson highlighted the importance of robust regulatory standards to manage systemic risks and maintain the integrity of U.S. markets. She emphasized the need for global regulatory coordination and the critical role of capital adequacy in preventing financial crises.

Chairman Rostin Behnam noted that the Commission preliminarily found the UK standards comparable to U.S. requirements under certain conditions. He said that the requested determination would be the fourth such proposed Order that aligns with the CFTC's substituted compliance framework adopted in July 2020.

Primary Sources

  1. CFTC Federal Register: Notice of Proposed Order and Request for Comment on an Application for a Capital Comparability Determination Submitted on behalf of Nonbank Swap Dealers subject to Capital and Financial Reporting Requirements of the UK
  2. CFTC Fact Sheet: Proposed Comparability Determination and Related Order for Nonbank Swap Dealers Subject to Capital and Financial Reporting Requirements of the United Kingdom and Regulated by the United Kingdom Prudential Regulation Authority
  3. Associations' Application: Substituted Compliance Application for UK Swap Dealers from CEA Sections 4s(e)–(f) and Rules 23.101 and 23.105(d)–(e), (p)(2)
  4. SIFMA Response Letter: CFTC Staff Questions Regarding Substituted Compliance Application for UK Swap Dealers from CEA Sections 4s(e)–(f) and Rules 23.101 and 23.105(d)–(e), (p)(2)
  5. Statement of Commissioner Caroline D. Pham in Support of Proposed Order and Request for Comment on Comparability Determination for UK PRA Swap Dealer Capital and Financial Reporting Requirements
  6. Statement of Commissioner Christy Goldsmith Romero: Promoting the Resilience of Swap Dealers in the United Kingdom through Strong Capital Requirements and Financial Reporting
  7. Statement of Commissioner Kristin N. Johnson: Combatting Systemic Risk and Fostering Integrity of the Global Financial System Through Rigorous Standards and International Comity
  8. Supporting Statement of Chairman Rostin Behnam on the Proposed Order and Request for Comment on the Application for a Capital Comparability Determination for Nonbank Swap Dealers Regulated by the United Kingdom Prudential Regulation Authority
  9. CFTC Letter 21-24: Extended No-Action Relief in Connection With Certain Previously Granted Commission Determinations and Exemptions, in Response to the Withdrawal of the United Kingdom From the European Union
  10. CFTC Letter 22-16: Extended and Revised No-Action Positions in Connection with Certain Previously Granted Commission Determinations and Exemptions, in Response to the Withdrawal of the United Kingdom from the European Union
  11. CFTC Federal Register: Notice of Comparability Determination for Certain Requirements under the European Market Infrastructure Regulation
  12. CFTC Federal Register: Notification of Determination: Comparability Determination for the European Union: Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants
  13. CFTC Order of Exemption: In the Matter of the Exemption of Multilateral Trading Facilities and Organised Trading Facilities Authorized Within the European Uniqn from the Requirement to Register with the Commodity Futures Trading Commission as Swap

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Tags

Individuals
Caroline D. Pham , Christy Goldsmith Romero , Kristin N. Johnson , Rostin Behnam
Regulated Activities
Capital Financial Recordkeeping & Reporting Regulatory Oversight
Sub-Activity
Substituted Compliance
Regulated Entities
Swap Dealers / SBSDs
Jurisdiction
US - Federal
Impacted Foreign Jurisdiction
United Kingdom
Organization
Non-U.S. Regulators CFTC, NFA, CFTC Markets
Sub-Author
Financial Conduct Authority, CFTC