SEC urges international regulators to compromise on cross-border derivatives rules

140px-US-SecuritiesAndExchangeCommission-Seal.svgThe SEC has recently urged international regulators to come to a compromise as they struggle to determine how to apply cross-border and over-the-counter derivatives rules.

“In my view, that happy medium has its foundation in an approach that recognizes comparable foreign regulation to the maximum extent possible, consistent with domestic policy goals,” SEC Chairman Elisse Walter said in prepared remarks, according to Reuters. “This approach would permit a market participant to comply with a set of domestic requirements in a particular arena – capital or risk management, say – by complying with the comparable foreign regulation. At the same time, the domestic regulator would continue to have the ability to apply certain key policy requirements of local law when foreign law does not impose comparable requirements.”

Walter’s tone differed from CFTC Chairman Gary Gensler’s, who proposed to force foreign banks to adhere to the same rules as their US counterparts when dealing with a US entity if their swap volume exceeds $8 billion per year.

Foreign regulators have balked at the proposal, saying it could create duplicative regulations, and they have urged US regulators to embrace a regulatory regime that would allow banks to rely on rule sets imposed by each individual nation, Reuters reports.

While Gensler indicated that the CFTC would accept compliance under the proposed framework but added that the CFTC would accept the substituted compliance to a lesser degree than indicated by Walter.

Walter said she hopes US regulators will avoid creating “overlap and conflict” and relying on foreign regulations to a degree that would encourage banks to seek out the most minimal regulatory framework.

“Insistence on either extreme represents in my view a resistance to a reasonable and desirable cooperation among regulators,” Walter said, according to Reuters.

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