The European Commission today issued a letter to Mr. Masamichi Kono, the Vice Commissioner for International Affairs at the Japanese Financial Services Agency (JFSA) regarding the equivalent assessment of OTC derivatives regulations.
This further demonstrates the worldwide view being taken on the reformation of the financial markets structure which involves electronically traded off-exchange assets being participated in by a global client base among global firms. The Dodd-Frank Act in the United States was set in place in 2010 with one of the priorities being the implementation of a global framework within which all companies have a standardized and transparent modus operandi and are equally accountable.
European Authorities Extend Deadline
The letter, issued to Mr. Kono by Michel Barnier, a senior member of the European Commission in Brussels, details that the European Commission provides confirmation to the JFSA that the European Commission has extended the European Securities and Markets Authority (ESMA)’s deadline for completing its technical advice on the comparability with EMIR of several third countries’ legal and supervisory frameworks. In the case of Japan, ESMA’s technical advice is now due by September 1, 2013.
Mr. Barnier made the European authorities’ position clear to the JFSA by explaining that ESMA is expected to provide the European Commission with its technical analysis, while the European Commission remains responsible for the equivalence decisions.
Concerning the equivalence assessments, as discussed between our staff, I confirm that the European Commission does not intend to conduct a rule-by-rule comparison but to rather adopt an outcome based approach. My staff will work in close cooperation with yours to ensure it has a comprehensive understanding of the Japanese legal and supervisory framework.
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A large part of the logistical and executional difficulty in achieving a worldwide adherence to a similar set of values is in the cultural differences that exist among different continents, and the gulf between business ethic in Europe, North America and the Asia Pacific regions, along with different infrastructure, trading patterns and financial market structure.
Mr. Barnier today provided Mr. Kono with assurance that the European Commission shares the same objectives of enabling each jurisdiction’s regulator to rely upon each other’s rules and supervision, with the view to avoid conflicts, inconsistencies, duplications and gaps. EMIR third country framework, based on the principle of equivalence, aims precisely at achieving this objective.
In the meantime, the European Commission is aware of the current uncertainties and their impact on the functioning of OTC derivatives markets.
Those uncertainties are unavoidable since all jurisdictions are at the early stages of implementation of the reforms which were agreed four years ago by the G20. To reduce and manage these uncertainties as much as possible, short term mitigating measures have been proposed in EMIR, by including transitional provisions that allow business continuity until the decisions on equivalence are made. For example, Japanese central counterparties (CCPs) that apply for recognition in the Union by September 15, 2015 may continue provide services to EU clearing members until a decision is made by ESMA on their recognition.
Mr. Barnier concluded by providing his reassurance that constant regulatory collaboration is essential to achieving the objective of setting efficient, standardized rulings in place: “I also would like to seize the opportunity of this letter to inform you that the European Commission adopted on 12 July a delegated Regulation explicitly exempting the Japanese central bank and debt management offices from the application of EMIR. This delegated Regulation is now under the scrutiny period of the European Parliament and the Council” he said.
“I look forward to continuing our constructive dialogue and I am confident that sustaining our joint efforts towards an international cooperative approach will help mitigate the current uncertainties and ensure overall an efficient global outcome” concluded Mr. Barnier.