On July 12, 2013, the Commodity Futures Trading Commission ("CTFC") approved final guidance addressing the extent to which the swap provisions of the Commodity Exchange Act ("CEA") added by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") apply to persons and entities located outside the United States. This cross-border guidance takes the form of documents entitled "Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations" (the "Final Guidance") and an "Exemptive Order Regarding Compliance with Certain Swap Regulations" (the "Exemptive Order").
Although Section 2(i) of the CEA contains an express territorial limit on the reach of its swap provisions, the Final Guidance reflects the CFTC's expansive view of the exception to that limit that permits regulation of any swap activity outside the United States that has "a direct and significant connection with activities in, or effect on, commerce of the United States." Other jurisdictions were critical of perceived overreaching in the CFTC's proposed guidance issued last year (the "Proposed Guidance"), but regulators in a number of G20 countries have now apparently accepted the CFTC view that the availability of compliance with non-US law as a substitute for compliance with CFTC swap rules will depend on comparability determinations made by the CFTC applying an "outcomes-based approach." The Final Guidance will be helpful to many non-US persons, but its complexity will pose challenges for those seeking to comply with its terms and some inconsistencies between the Final Guidance and the cross-border rules proposed by the Securities Exchange Commission (SEC) for security-based swaps will have to be addressed over time.
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