CFTC Chairman Gary Gensler, speaking at a seminar at the Bank of England this week, continued to call for the extra-territorial application of Dodd-Frank laws for companies doing business with U.S. entities in the swaps market.
Market participants have reacted with concern to Gensler’s extraterritoriality call, noting the potential for heavy regulatory requirements. Foreign regulators have also publicly questioned such an application, AutomatedTrader.net reports.
“The reality of modern finance is that large financial institutions set up hundreds, if not thousands, of ‘legal entities’ around the globe,” Gensler said, according to AutomatedTrader.net. “Many of these legal entities, however, are still highly connected back to their U.S. parent.
“For the American public to be protected, swaps market reform should cover transactions with U.S. overseas branches, overseas affiliates guaranteed by US entities, and overseas affiliates operating as conduits for US entities’ swaps activity.”
Gensler said that Dodd-Frank’s phased implementation for market participants allowed for more time to endurance compliance. Such implementation would also allow the CFTC to consider substituted compliance when appropriate.
Substituted compliance would be used when firms that do not operate in the U.S. are subject to local regulation if it is found to be broadly equivalent to Dodd-Frank. Many European regulators favor this method of compliance, AutomatedTrader.net reports.