US and EU Push For Common Approach with latest CFTC Framework

CFTC relief to dually registered CCPs and DCOs in the EU by recognizing their related EMIR compliance as meeting CFTC

More steps towards cross-border regulatory harmony have been taken as the United States (US) Commodity Futures Trading Commission (CFTC) today approved a substituted compliance framework for certain counterparties that are also regulated in Europe, thus simultaneously providing relief for the applicable firms from specific CFTC regulations.

This follows the joint CFTC statement with the European Commission (EC) that was announced on February 10th aimed towards a common approach for certain transatlantic dealers, and to help improve market efficiency for the many businesses and industries that use derivative markets for hedging commercial risk.

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After extensive consultations with the European authorities, the determinations that were made identify comparable EMIR requirements that related to corresponding CFTC requirements, so the regulator can recognize a firm’s compliance to EMIR as acceptable to meet the definition of compliance to equivalent CFTC rules which are based on the Commodity Exchange Act.

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Paving the way for international harmonization

While the news today only affects Derivatives Clearing Organizations (DCOs) and Central Counterparties (CCP) that are dual-registered (i.e. in both EU and the US), such collaboration could help pave the way for a standardized cross-border regulatory approach for other financial market segments in the future as further work on international harmonization is underway.

As part of the new determination, DCOs and CCPs handling risk management, settlement procedures, financial resources, and other default rules and procedures under EMIR may be considered in compliance with certain related CFTC requirements – thus providing them relief from repeated compliance from each regulator over the same type of operation, which are substituted under the new framework.

The measures follow after the recent historic Equivalence Agreement between the European Union and the United States, which allows similar requirements to be honored, with the goal of a common approach, yet the EU will still need to also recognize US firms to make it fully standardized both ways for the CCPs and DCOs. For now, the CFTC’s Division of Clearing and Risk (DCR) issued a no-action letter that provides limited relief to the mentioned registrant categories, to certain aspects of their non-US clearing activities.

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