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CFTC to delay risk management rules for U.S. firms overseas

As part of an effort to ease firms into compliance with Dodd-Frank, the Commodity Futures Trading Commission may delay Dodd-Frank rules related to risk management for overseas-based operations of U.S. financial institutions.

The CFTC has already issued 40 letters delaying certain provisions of Dodd-Frank, and officials have indicated that more will follow in coming weeks.

“We have and will continue to grant requests for phased compliance,” Gary Gensler, the chairman of the CFTC, said, adding that the delays are intended to “smooth the transition” to new rules, according to Businessweek.

The regulations would require Wall Street’s biggest banks to register as swap dealers at the end of the year and require the institutions to clear trades through central clearinghouses.

Additionally, the letters provide relief to firms like JPMorgan, America’s largest swaps dealer, and LCH.Clearnet Group, the world’s largest interest-rate swaps clearinghouses.

“Maybe four years from now someone will ask why they issued all these no-action letters taking all the teeth out of the law,” Jeffrey Harris, a professor of finance at Syracuse University’s business school and the CFTC’s former chief economist, said, Businessweek reports. “There needs to be some method and mechanism to go back and revisit these once final rules are in place.”

The CFTC came under fire by international regulators after it proposed guidance in June regarding the worldwide implications of Dodd-Frank and the deadlines by which foreign-based firms trading with American clients would be required to comply.

The CFTC has also used no-action letters to resolve conflicts in final regulations. After issuing rules in February requiring funds to register by year’s end, the CFTC said that it could not say whether “family offices” that manage investments would be subject to the rules. Last month, the CFTC issued letters exempting family offices after receiving dozens of comment letters on the issue, according to Businessweek.

The agency’s reliance on guidance was also the target in a lawsuit by CME Group, which alleged that data-reporting requirements could damage the company. The CFTC withdrew the referenced section of the rules last week.

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