Global regulators say that although complete harmonization of the rules for over-the-counter (OTC) derivatives markets is impossible, they are nevertheless committed to minimizing gaps, conflicts and inconsistencies.

In a joint statement released Tuesday by regulators from Canada, the United States, Australia, Brazil, the European Union, Hong Kong, Japan, Singapore and Switzerland, regulators acknowledge that regulatory reform agenda for the OTC derivatives market mandated by the G20 requires co-ordination, and that inconsistent rules may entail added compliance burdens and create opportunities for regulatory arbitrage.

“However, complete harmonization — perfect alignment of rules across jurisdictions — is difficult as it would need to overcome jurisdictions’ differences in law, policy, markets and implementation timing, as well as to take into account the unique nature of jurisdictions’ legislative and regulatory processes,” it says.

Nevertheless, the regulators say that, at a meeting last week (including Ontario Securities Commission (OSC) chair, Howard Wetston, and vice chair, Mary Condon; and, Louis Morisset, superintendent securities markets at the Autorité des marchés financiers du Québec (AMF)), they identified various potential conflicts, inconsistencies, and duplicative requirements within their proposed rules, and they say they will “continue to discuss measures to ameliorate the challenges they raise.”

The statement indicates that the regulators agreed to certain steps to address these challenges. They agreed to consult with each other prior to making any final determinations regarding which derivatives products will be subject to a mandatory clearing requirement.

They also agreed to attempt to enter into supervisory cooperation arrangements that will enable effective supervision and oversight of cross-border market participants, intermediaries and infrastructures; and ensure compliance with statutory and regulatory requirements; and, to enter into bilateral enforcement cooperation arrangements. The regulators also said they will work to ensure that other authorities have access to data held in trade repositories.

Finally, they pledged to try and make clear the timing and scope of cross-border requirements, given the G20 commitments to implement key OTC reforms by the end of this year.

“We recognize that differences in implementation dates may create gaps in regulations and uncertainty in the application of certain cross-border regulatory requirements, and may lead to risks to financial markets that are unaddressed, to regulatory arbitrage, and to an uneven playing field for market participants, intermediaries and infrastructures,” it says. “Accordingly, we renew our efforts to implement quickly OTC derivatives reforms and in a manner consistent with an orderly implementation process in our respective jurisdictions.”

The regulators say that the absence of rules in certain jurisdictions may limit their ability to rely on substituted compliance; and that they will consider providing transition periods for entities in jurisdictions that are implementing comparable regulations, supervision, and oversight.

“In order to facilitate an orderly transition with respect to new OTC derivatives regulatory requirements when promulgating regulations with cross-border applicability, we agree to a reasonable, limited transition period to facilitate the implementation of such cross-border regulatory requirements in appropriate circumstances and in consultation with other jurisdictions,” they say.

The regulators also pledged to next meet in Brussels in early 2013 to examine options to address identified conflicts, inconsistencies and duplicative rules; and to discuss the basis for determining that regulatory regimes can be considered comparable. They said they will meet in January to inform each other of the planned timing of the finalization and implementation of rules, discuss possible transition periods, and update each other on the progress in their own jurisdictions.