Joint Press Statement of Leaders on Operating Principles and Areas of Exploration in the Regulation of the Cross-Border OTC Derivatives Market
FOR IMMEDIATE RELEASE
Washington, D.C., Dec. 4, 2012 — The Securities and Exchange Commission's Office of International Affairs today released the following joint statement of leaders of regulatory authorities on the regulation of OTC derivatives markets:
Leaders of 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,1 met on November 28, 2012 to discuss reform of the OTC derivatives market as agreed by the leaders at the G-20 Pittsburgh Summit in September 2009.
We 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. We further 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. We also acknowledge the need to take into account, among other factors, minimizing the application of inconsistent and duplicative rules.
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 - 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.
We recognize that national authorities have ultimate responsibility and authority to protect against all sources of risk to their markets, and that 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.
We 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. We further recognize that regulatory gaps may present risks to financial markets and provide the potential for regulatory arbitrage.
During our series of discussions, we have identified various potential conflicts, inconsistencies, and duplicative requirements within our respective contemplated rules and we will continue to discuss measures to ameliorate the challenges they raise. In this connection, it is therefore important to (i) develop concrete and practical solutions with respect to any conflicting application of rules, (ii) identify inconsistent or duplicative requirements and attempt to reduce the regulatory burdens associated with such requirements, and (iii) identify gaps and reduce the potential for regulatory arbitrage.
In light of the above, we have reached the following understandings and identified the following areas for further exploration.
1. Understanding on Clearing Determinations
In a manner consistent with our respective legal regimes and the achievement of our policy objectives, we agree to consult with each other prior to making any final determinations regarding which derivatives products will be subject to a mandatory clearing requirement. We also commit that once one of the authorities decides that a certain product or class of products should be subject to a clearing requirement, then each of us will consider whether the same product should be subject to the same requirement in our jurisdictions, having regard to the characteristics of our domestic markets and in accordance with the applicable determination processes in our respective legal regimes.
We agree to continue to work together to define the process pursuant to which our respective authorities will consult in making mandatory clearing determinations.
2. Understanding on Sharing of Information and Supervisory and Enforcement Cooperation
We recognize that entering into, and abiding by, supervisory and enforcement cooperation arrangements should facilitate effective coordination in implementing recognition, substituted compliance, and registration categories and exemptions approaches.
We agree to attempt to ensure that the relevant supervisory authorities:
We will make every effort to provide to each other the assistance necessary to satisfy our counterpart's statutory and regulatory requirements under the terms and conditions of these supervisory and enforcement cooperation arrangements.
We also recognize such arrangements should not preclude market participants, intermediaries and infrastructures from meeting their obligation to provide relevant information under that authority's recognition or registration (including substituted compliance, registration categories or exemptions) framework.
We agree that authorities should have appropriate and effective access to such data as required to perform properly their mandates. Consistent with our domestic law and the relevant international regulatory recommendations, standards and principles, we will work to ensure that other authorities have appropriate and effective access to data held in trade repositories consistent with their mandates.
3. Understanding on Timing
Keeping in mind the G-20 commitments to implement key OTC reforms in our respective jurisdictions with respect to clearing, reporting, trading and capital by end-2012, we recognize that differences in implementation dates may create gaps in regulations and uncertainty in the application of certain cross-border regulatory requirements, and may lead to risks to financial markets that are unaddressed, to regulatory arbitrage, and to an uneven playing field for market participants, intermediaries and infrastructures. Accordingly, we renew our efforts to implement quickly OTC derivatives reforms and in a manner consistent with an orderly implementation process in our respective jurisdictions.
Wherever possible consistent with applicable laws and regulations, the scope of market participants to whom cross border regulatory requirements apply should be clear. The absence of rules and regulations in certain jurisdictions may limit the assessments of such jurisdictions for purposes of giving effect to regimes based on recognition and substituted compliance. We will consider providing appropriate transitional implementation periods for entities in jurisdictions that are implementing comparable regulations, supervision, and comprehensive oversight.
In order to facilitate an orderly transition with respect to new OTC derivatives regulatory requirements when promulgating regulations with cross-border applicability, we agree to a reasonable, limited transition period to facilitate the implementation of such cross-border regulatory requirements in appropriate circumstances and in consultation with other jurisdictions. Consistent with the G-20 commitments, we commit to work with our legislative bodies to finalize expeditiously relevant legislation and to promulgate promptly requirements in a form flexible enough to respond to cross-border consistency and other issues that may arise, consistent with our respective legal requirements and our core policy objectives.
4. Areas of Exploration - Scope of Regulation and Recognition or Substituted Compliance for Cross Border Compliance
We discussed different possible approaches to regulating persons, transactions and infrastructures with respect to cross-border activity when more than one set of rules applies. We discussed the differences in scope of our rules and the application of requirements to foreign participants, intermediaries and infrastructures. We also noted the need to prevent the application of conflicting rules and the desire to minimize, where appropriate, the application of inconsistent and duplicative rules. We agree that one or more of the following or different approaches should be considered, consistent with our respective statutory and other legal requirements:
We agree that these different approaches will not be undertaken on a firm by firm basis but rather will focus on the applicable regime in a jurisdiction and will entail a review of laws, rules, supervision and enforcement.
Authorities will consider these different approaches, taking into account, among other factors, the application of conflicting, inconsistent and duplicative rules to the same entities and transactions.
Permitting compliance with another jurisdiction's rules and regulations through either recognition or substituted compliance to satisfy our rules and regulations or exempting a person from our rules and regulations does not restrict, or represent a forfeit of, our power to take appropriate regulatory, supervisory or enforcement measures over a person or transactions subject to our law. However, in this case, close consultation with relevant authorities of another jurisdiction will be needed in connection with taking such measures.
We will continue to work together to further refine the concepts of recognition, substituted compliance, registration categories and exemptions, including continued consultation in a timely manner about our respective processes for determining when we will use recognition, substituted compliance, registration categories or exemptions and the conditions that we will require to be met for such treatment.
In support of these understandings and areas of exploration, we commit to regularly meet and consult with one another. We agree to next meet in Brussels in early 2013. Future meetings will address the following items:
5. International Engagement
We support the continued development and setting of international standards by IOSCO and other standard setting bodies and intend to remain active in the various workstreams related to OTC derivatives. We support the efforts of the Financial Stability Board (FSB) in ensuring coordination among international standard-setting bodies. We further support the efforts of the FSB to promote the implementation of the G-20 regulatory reform agenda in the area of OTC derivatives regulation.
# # #
1 The meeting was among the following leaders of regulatory authorities: Belinda Gibson of the Australian Securities and Investments Commission, Otavio Yazbek of the Brazilian Comissao De Valores Mobiliarios, Jonathan Faull of the European Commission, Steven Maijoor and Martin Wheatley of the European Securities and Markets Authority, Keith Lui of the Hong Kong Securities and Futures Commission, Masamichi Kono of the Japanese Financial Services Agency, Howard Wetston and Mary Condon of the Ontario Securities Commission, Louis Morisset of the L'Autorité des marchés financiers du Québec, Chuan Teck Lee of the Monetary Authority of Singapore, Urs Zulauf of the Swiss Financial Market Supervisory Authority, Gary Gensler of the U.S. Commodity Futures Trading Commission, and Mary Schapiro and Elisse Walter of the U.S. Securities and Exchange Commission.