Extraterritoriality agreement – maybe today, maybe tomorrow…

Extraterritoriality agreements for cross-border OTC derivatives have been hotly debated for a while now, but there have been few visible signs of progress in recent months. Last week the Chairman of the US SEC, Elisse Walter, presented her views on the complex area of equivalence and reciprocity. In her speech she referred to the problems that domestic regulators would face if forced to accept the full scope of foreign regulation as equivalent in order to receive reciprocity. She argues that this “all-in approach” limits regulators considerably and advocates, instead, a new approach that would allow regulators to accept certain parts of foreign regulation as equivalent, while fully enforcing other parts of domestic regulation on foreign firms.

This has obvious benefits for the SEC and other regulatory bodies, allowing them to make more precise decisions and quickly agreeing on undisputed rules which are fairly similar around the world. However, it fails to address many of the issues faced by trading firms – for example, foreign privacy laws restricting them from reporting counterparty information to US trade repositories.

So, while regulators might introduce globally consistent rules tomorrow, FCMs and brokers must find solutions today. Without smart workflow and global data management that can handle every domestic idiosyncrasy, it’s hard to see how anyone will avoid the wrath of the regulator.

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