U.S. derivatives regulators have approved Canada, along with several other countries, as having comparable regulatory regimes, allowing firms to simply comply with the rules in their home jurisdictions in order to meet U.S. standards in certain areas.
The U.S. Commodity Futures and Trading Commission (CFTC) ruled that Canada, Australia, the European Union, Hong Kong, Japan, and Switzerland are deemed comparable in terms of certain provisions of the Dodd-Frank Act, which would permit “substituted compliance” with the CFTC’s regulations in these areas.
Substituted compliance describes the circumstances where the commission’s general policy would be to permit non-U.S. swap dealers that might be captured by certain CFTC regulations, to use compliance with regulations in their home jurisdiction as a substitute for compliance with the U.S. regulations.
The CFTC says that this approval “reflects a collaborative effort with authorities and market participants from each of the six jurisdictions that has registered swap dealers.” It notes that it has issued comparability determinations for a broad range of entity-level requirements, and that it has also approved substituted compliance for a number of key transaction-level requirements for firms in the EU and Japan.
“As jurisdictions outside the U.S. continue to strengthen their regulatory regimes, the commission may determine that additional foreign regulatory requirements are comparable to and as comprehensive as certain requirements under [U.S. rules],” it notes.
Along with the comparability determination, the CFTC also granted relief from certain aspects of its rules for firms that operate in comparable jurisdictions.
CFTC commissioner, Scott O’Malia, opposed the decision to allow substituted compliance in certain areas, and issued a dissent from the commission’s decision. “While I support the narrow comparability determinations that the commission has made, moving forward, the commission must collaborate with foreign regulators to harmonize our respective regimes consistent with the G-20 reforms,” he said.
He said that the decision to allow substituted compliance is based on legally unsound cross-border guidance; is the result of a flawed substituted compliance process; and, fails to provide a clear path for the future. “If the commission’s objective for substituted compliance is to develop a narrow rule-by-rule approach that leaves unanswered major regulatory gaps between our regulatory framework and foreign jurisdictions, then I believe that the commission has successfully achieved its goal today,” he said.