CFTC Allows Non-U.S. Entities to Comply with Home Jurisdiction Swap Requirements in Lieu of Certain U.S. Regulations

The CFTC has determined that certain entity-level swap requirements of six non-U.S. jurisdictions are generally “comparable” to those of the Commodity Exchange Act and CFTC regulatory regime.  This means that “substituted compliance,” in which a non-U.S. person may follow certain requirements of its home jurisdiction in lieu of those of the United States, is available under certain conditions with respect to those jurisdictions, as established in the CFTC’s cross-border guidance.  The determinations were made for Australia, Canada, the European Union, Hong Kong, Japan, and Switzerland.  The CFTC also issued comparability determinations with respect to certain transaction-level requirements for the European Union and Japan.

The determinations apply to specified regulations only, and the CFTC has not yet made final determinations regarding various other regulations.  In several cases, certain rules were excepted from the determinations.  For example, the Australian regime (alone among the six jurisdictions) was found not to be comparable with respect to CFTC Regulation 3.3(e), which requires a swap dealer or major swap participant to produce an annual report meeting certain requirements, while none of the six jurisdictions were found to be comparable with respect to CFTC Regulation 3.3(f), which requires the chief executive officer or chief compliance officer of a swap dealer or major swap participant to certify that the annual compliance report is accurate and complete and requires that the report be furnished to the CFTC.  The CFTC also made no determination regarding CFTC Regulation 23.609, which pertains to clearing member risk management, for Hong Kong or Switzerland because the CFTC determined that neither jurisdiction currently has laws or regulations comparable to CFTC Regulation 23.609.

Related Action by DSIO

In a related action, the CFTC’s Division of Swap Dealer and Intermediary Oversight (“DSIO”) issued a no-action letter providing time-limited no-action relief for registered swap dealers and major swap participants that are non-U.S. persons (“covered persons”) established under the laws of certain of these jurisdictions from the requirements to comply with certain regulations for which comparability was not found.  Specifically, DSIO indicated that it would not recommend an enforcement action prior to March 3, 2014, for covered persons established in Australia, Canada, the European Union, Japan, and Switzerland with regard to CFTC Regulations 23.600(c)(2) (which requires a swap dealer or major swap participant to produce quarterly risk reports and provide them to its senior management, governing body, and the CFTC) and 23.608 (which imposes certain restrictions on counterparty clearing relationships).

DSIO provided similar no-action relief to covered persons established in Switzerland from CFTC Regulation 23.609, which pertains to clearing member risk management.  Although (as noted above) the CFTC did not issue a comparability determination for either Hong Kong or Switzerland with regard to CFTC Regulation 23.609, the no-action letter explains that no Hong Kong entity is currently required to comply with Regulation 23.609, and therefore no relief is necessary.

Related Action by DMO

In yet another related action, the CFTC’s Division of Market Oversight (“DMO”) issued time-limited no-action relief from certain aspects of its regulations under Part 45 (which governs swap data reporting) and Part 46 (which governs swap data reporting for historical swaps) (collectively, the “SDR Reporting Rules”), which were not covered by the comparability determinations.  The relief applies to swap dealers and major swap participants established in Australia, Canada, the European Union, Japan, and Switzerland that are not part of an affiliated group in which the ultimate parent entity is a U.S. swap dealer, U.S. major swap participant, U.S. bank, U.S. financial holding company, or U.S. bank holding company.  The relief provides that DMO will not recommend that an enforcement action be taken with regard to such persons for failure to comply with the SDR Reporting Rules with respect to its swaps with non-U.S. counterparties that are not guaranteed affiliates or conduit affiliates of a U.S. person until the earlier of December 1, 2014, and 30 days after the CFTC issues a comparability determination with respect to the SDR Reporting Rules for the relevant jurisdiction.  The relief also applies to such persons with respect to their swaps with non-U.S. counterparties that are guaranteed affiliates or conduit affiliates of a U.S. person; that relief expires on March 3, 2014 with respect to the Part 45 rules, and April 2, 2014, with respect to the Part 46 rules.

The relief does not apply to the CFTC’s record-keeping rules included in Parts 45 and 46, and also does not apply to the reporting obligation of other entities, such as swap execution facilities.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

 

Topics:  CFTC, Commodities Exchange Act, DSIO, Jurisdiction, Recordkeeping Requirements, Swaps

Published In: Finance & Banking Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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