The continuing dialog between international governmental departments concerning the reformation of OTC derivatives markets, made further progress on August 30, in the issuance of a report by a series of financial regulators across eleven jurisdictions to the G20 Finance Ministers and Central Bank Governors.
Since the financial crisis of 2008, the world’s regulatory authorities, led to a large extent by the United States government and the Commodity Futures Trading Commission, have convened on a number of occasions at Senate-level meetings hosted by panels of law makers and senior leaders within the financial sector, in order to make efforts to reform and standardize the way in which OTC derivatives are provided regardless of borders.
Earlier this month, senior representatives on both sides of the Atlantic reached a point where they are able to announce a path forward regarding their joint understandings on a package of measures for how to approach cross-border derivatives.
The report of August 30 expands on this somewhat further, to incorporate and address common understandings to improve the cross-border implementation of OTC derivatives reforms, and has been submitted by parties responsible for financial markets regulation in Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Quebec (Canada’s regulators are provincial rather than federal), Singapore, Switzerland and the United States.
The report has been drawn up in response to an April 2013 request by the G20 Finance Ministers and Central Bank Governors, urging key OTC regulators to intensify their efforts to address and resolve remaining cross-border conflicts, inconsistencies, gaps and duplicative requirements by the St. Petersburg Summit, which will take place on September 5 and 6, 2013.
This particular report reflects a number of substantive understandings to improve the cross-border implementation of OTC derivatives reforms, including the following:
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• Early and comprehensive consultation among relevant authorities when equivalence or substituted compliance assessments are being undertaken, is essential.
• A flexible, outcomes-based approach should form the basis of final assessments regarding equivalence or substituted compliance assessments.
• A “stricter-rule” approach would apply to address gaps in mandatory trading or clearing obligations.
• Authorities have a framework for consultation on mandatory clearing determinations.
• Jurisdictions should remove barriers (1) to reporting to trade repositories by market participants and (2) to access to trade repository data by authorities.
• There should be appropriate transitional measures and a reasonable but limited transition period for foreign entities to implement OTC derivatives reforms.
The report also recognizes that challenges will continue to arise in the implementation of OTC derivatives reforms and presents a number of additional topics for further discussion, including authorities’ direct access to registrant information and the treatment of foreign bank branches and guaranteed subsidiaries.
Finally, the report recognizes that open communication is vital to ensure there is common understanding of each jurisdiction’s processes and timelines to implement OTC derivatives reforms, and that flexibility in the application of cross-border regulation will be needed to make progress toward cross-border consistency.