“The CFTC staff will soon be recommending to the commission to publish for public comment a release on the cross-border application of swaps market reforms,” Gensler said. “It will consist of interpretive guidance on how these reforms apply to cross-border swap activities. It also will include an overview as to when overseas swaps market participants, including swap dealers, can comply with Dodd-Frank reforms through reliance on comparable and comprehensive foreign regulatory regimes, or what we call ‘substituted compliance.’”
Gensler said that the CFTC is working with regulators, both domestic and abroad, to regulate the international swaps market.
Key elements of the cross-border regulation include requirements to register under the CFTC’s swap dealer registration rules, defining what a U.S. facing transaction is and a tiered approach for overseas swap dealers requirements.
Gensler expressed concern regarding House bill H.R. 3283 that he claims would omit large portions of the swaps market from reform. The bill would provide an exemption for swaps that involve non-U.S. entities.
“It would substantially reduce transparency and increase risk to our financial system and the economy,” Gensler said. “If this or similar legislation were enacted, it is likely that U.S. banks, hedge funds, insurance companies, asset managers and other financial entities would transact their swaps with each other offshore, branch to branch or guaranteed affiliate to affiliate. The results: particularly in a crisis, risk would still directly flow back here, while the transactions and related jobs may be overseas.”