Gensler defends extraterritorial reach of Dodd-Frank

Gary Gensler

Gary Gensler

CFTC Chairman Gary Gensler recently defended some rules of the controversial Dodd-Frank Act, saying that while foreign regulation would suffice in some cases, areas that could affect U.S. markets should be regulated by U.S. laws.

While some critics have said that Dodd-Frank is overreaching and too expansive, Gensler said that the recent financial crisis revealed the inter-connectedness of global markets, Waters Technology reports.

“Looking forward, it’s a priority that the Commission ensures the cross-border application of swaps market reform appropriately covers the risk of U.S. affiliates operating offshore,” Gensler said in remarks prepared in advance of the Futures Industry Association’s annual conference, according to Waters Technology. “During a default, risk knows no geographic border. If a run starts in one part of a modern financial institution, whether it’s here or offshore, the risk comes back to our shores. That was true with AIG, which ran most of its swaps business out of the London neighborhood Mayfair. It was also true at Lehman Brothers, Citigroup, Bear Stearns and Long-Term Capital Management.”

Gensler said that foreign regulation would be considered in some cases, but events that could potentially come back to U.S. shores should remain under the jurisdiction of Dodd-Frank.

“As the CFTC completes the cross-border guidance, I believe it’s critical that Dodd-Frank swaps reform applies to transactions entered into by branches of U.S. institutions offshore, between guaranteed affiliates offshore and for hedge funds that are incorporated offshore but operate in the U.S.,” Gensler said, Waters Technology reports. “Where there are comparable and comprehensive home country rules abroad, we can look to substituted compliance, but the transactions would still be covered.”

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