U.S. Swaps Plan Won’t Work Overseas, European Official Says

EC's Pearson warns that CFTC's cross-border approach will ‘cause conflicts.’

A U.S. plan to extend the reach of its derivatives rules across international borders “won’t work” without alteration, a top European regulator said in Washington today.

U.S., Asian and European regulators are gathered in an effort to resolve differences over the international reach of the U.S. swaps rules drafted by the Commodity Futures Trading Commission for Goldman Sachs Group Inc., Deutsche Bank AG and other trading firms. Absent agreement, they risk undermining international efforts to reduce risks in the $648 trillion global swaps market, the overseas regulators told the CFTC.

Regulatory Goals

The G-20 nations set an end-of-the-year goal to complete swaps regulations designed to reduce risk and increase transparency in a market faulted for helping to fuel the 2008 credit crisis. Lack of clarity and international wrangling over the rules threaten to delay the deadline, according to the Financial Stability Board, an international regulatory group that has been monitoring new swaps rules.

Seeking Clarity

The CFTC’s proposal failed to clarify the reach of the rules and could lead to conflicts, according to letters submitted to the CFTC by overseas regulators, including the U.K.’s Financial Services Authority, European Commission, European Securities and Markets Authority, Financial Services Agency in Japan, the Bank of Japan, Bank of France and Swiss Financial Market Supervisory Authority.

Limiting Trades

DBS Group Holdings Ltd, based in Singapore, and Nordea Bank AB, the Nordic region’s largest lender, have said they won’t need to register in the U.S. under Dodd-Frank rules. “We do not intend to register as a swap dealer in the U.S. because we expect our trading volumes with U.S.-based counterparties to stay below the threshold which triggers the CFTC registration requirement,” Karen Ngui, a Singapore-based spokeswoman for DBS, said in an Oct. 24 e-mail statement.

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