The Financial Stability Board (FSB) Wednesday published its latest progress report on the implementation of over-the-counter (OTC) derivatives market reforms, which finds that regulatory uncertainty remains the biggest impediment to progress.
The report, which aims to assess the readiness of market infrastructure to provide clearing services, collect and disseminate trade data, and provide organised trading platforms for OTC derivatives, also reviews the progress made by standard-setting bodies and regulators towards commitments made by G20 Leaders in 2009 (including that, by the end of 2012, all standardized OTC derivative contracts be traded on exchanges or electronic trading platforms and cleared through central counterparties (CCPs); that OTC derivative contracts be reported to trade repositories; and non-centrally cleared contracts be subject to higher capital requirements).
The FSB report finds that the necessary market infrastructure is in place and can be scaled up, and so it is not standing in the way of further progress in meeting the G20 commitments. Also, international policy work on the four safeguards for global clearing is substantially completed and implementation is proceeding, it says.
The most significant impediment to further progress is regulatory uncertainty. “Jurisdictions should put in place their legislation and regulation promptly and in a form flexible enough to respond to cross-border consistency and other issues that may arise,” the FSB says.
It stresses that regulators need to act by the end of this year to identify conflicts, inconsistencies and gaps in their respective national frameworks, and says they need to work together quickly to address the identified issues.
The FSB reports that its review of infrastructure readiness found that the expansion of infrastructure has eased up due to uncertainty over the future regulatory framework, including uncertainty over the scope of products and participants that mandatory requirements will cover and the potential for cross-border regulatory differences and overlap.
Indeed, it notes that progress in cross-border discussions has been slow, and risks delaying the full implementation of the G20 objectives. It urges key OTC derivatives market regulators to pursue further discussions before the yearend deadline to address cross-border issues.