In preparation for the forthcoming Meeting of Finance Ministers and Central Bank Governors of 18-19 April, the principals of the authorities with responsibility for the regulation of the over-the-counter (OTC) derivatives markets in Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Quebec, Singapore, Switzerland and the United States, held four meetings yesterday to discuss reform of the OTC derivatives market.
The principals recognize that the OTC derivatives market is a global market and firmly support the adoption and enforcement of robust and consistent standards in and across jurisdictions. This will help further the G-20 regulatory reform agenda for OTC derivatives markets to mitigate risk, improve transparency and protect against market abuse, and to prevent regulatory gaps, reduce the potential for arbitrage opportunities, and foster a level playing field for market participants, intermediaries and infrastructures.
They also recognize the need to reduce regulatory uncertainty and provide market participants, intermediaries and infrastructures with sufficient clarity on laws and regulations by avoiding, to the extent possible, the application of conflicting rules to the same entities and transactions. They also acknowledge the need to take into account, among other factors, minimizing the application of inconsistent and duplicative rules.
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It is clear that coordination among jurisdictions regarding the regulation of cross-border activities should facilitate the implementation of the objectives of the G-20 regulatory reform agenda for the OTC derivatives market. However, complete harmonization involving perfect alignment of rules across jurisdictions is difficult as it would need to overcome jurisdictions’ differences in law, policy, markets and implementation timing, as well as to take into account the unique nature of jurisdictions’ legislative and regulatory processes.
The principals recognize that national authorities have ultimate responsibility and authority to protect against all sources of risk to their markets, and that the statutory and regulatory requirements of each jurisdiction are core components of each respective market. Legal systems and market conditions differ among jurisdictions and due account should be taken of such differences in determining the cross-border application of laws and regulations.
The principals also recognize that conflicting or inconsistent cross-border application of rules to market participants, intermediaries, infrastructures and products may inhibit the execution or clearing of certain cross-border transactions or impose additional compliance burdens. The principals further recognize that regulatory gaps may present risks to financial markets and provide the potential for regulatory arbitrage.