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CFTC may avoid cost-benefit analysis in favor of guidance for international derivatives

Gary Gensler

The Commodity Futures Trading Commission may release a proposal for guidelines related to the oversight of international derivatives that does not require a cost-benefit analysis.

The agency is currently preparing interpretive guidance on the international implications of Dodd-Frank derivatives rules that would allow the CFTC to skip its normal cost-benefit analysis. Lawsuits related to allegedly flawed cost-benefit analysis have been a major hindrance in the process of Dodd-Frank rule-writing, Bloomberg reports.

U.S. financial institutions have protested the application of Dodd-Frank rules to non-U.S. swaps guaranteed by a U.S. firm, saying that doing so would affect their ability to compete against foreign rivals.

CFTC Chairman Gary Gensler advocates the extension of Dodd-Frank regulations to cover the transactions of overseas U.S. affiliates. Donald N. Lamson, counsel at Shearman & Sterling LLP, however, said that the CFTC should take great care in its disregard of cost-benefit analysis.

“Depending on the extensiveness of the requirements that are going to be imposed through guidance, the CFTC needs to be careful that it complies with its requirements,” Lamson, a former attorney at the Office of the Comptroller of the Currency, said, according to Bloomberg. “It would be ill-advised to avoid a cost-benefit analysis and choose to issue substantive requirements as guidance simply to avoid the exercise.”

The CFTC has faced a series of legal challenges from both industry and business groups related to its process of cost-benefit analyses. In April, the CFTC faced charges by the U.S. Chamber of Commerce and the Investment Company Institute that the agency did not conduct a thorough cost-benefit analysis when it imposed a rule that requires mutual funds to register with the CFTC.

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