Wall Street Argues Against Regulatory Reach Overseas

Industry lobbying group defends swaps trading by affiliates abroad from compliance with U.S. regulations.

Responding to warnings from U.S. regulators that banks are finding ways around new curbs on financial risks, Wall Street is mobilizing to defend its latest tactic to keep overseas derivatives beyond the reach of U.S. rules.

The industry’s main lobbying group is prepping a strategy to explain why the new practice—removing guarantees from U.S. banks’ overseas trading—is a lawful response to the 2010 Dodd-Frank Act and not an effort to take advantage of a loophole, according to a two-page memo obtained by Bloomberg News.

The Sifma memo seeks to dispute the notion that banks remain exposed to risks from the non-guaranteed trades. For example, banks have not replaced the guarantees with other support arrangements, according to the memo. Overseas units are separately capitalized and subject to supervision by local authorities, the memo said.

Removing guarantees “relieves U.S. parent entities from liability on obligations incurred by their non-U.S. affiliates and fully complies with the CFTC’s approach,” Randy Snook, Sifma’s executive vice president of business policies, said yesterday in an e-mailed statement.

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