The Financial Stability Board (FSB) has published a report to G20 Finance Ministers and Central Bank Governors concerning jurisdictions’ ability to defer to each other’s over-the-counter derivatives market regulatory reforms.

FSB review

Earlier this year the FSB Chairman wrote to all FSB member jurisdictions asking them to set out their frameworks with regard to over-the-counter derivatives (OTCD) reforms. In particular, the letter asked for information on frameworks for deference to another jurisdiction’s OTCD regulatory requirements applicable to trade repositories (TRs), central counterparties (CCPs) and exchanges/electronic trading platforms (together, “infrastructure providers”) and to market participants.

In the report the FSB notes that all but five jurisdictions (Argentina, Brazil, China, India and Indonesia) state that they have some capability to defer to OTCD requirements in another jurisdiction.

Main findings

The main findings that emerge from the responses to the FSB Chairman’s letter include:

• while there are some broad similarities in how jurisdictions approach the application of “deference”, there are nevertheless still differences in the circumstances under which deference would be applied, and how it would be applied;
• the authority, standards and processes for making determinations vary across jurisdictions and, in some instances, within jurisdictions, depending on the entity requesting deference or the scope of deference being granted;
• most jurisdictions report that they will not look for ‘identical’ rules in their assessments of foreign jurisdictions when considering whether to grant deference. Instead, they will typically consider (or plan to consider) outcomes or impact of a foreign regulatory regime, compliance with the CPMI-IOSCO Principles for Financial Market Infrastructures and other relevant international standards, and the comparability of oversight and enforcement by authorities in the foreign jurisdiction as part of their assessments;
• although most jurisdictions have in place the authority to make deference decisions, only a small number of jurisdictions have to date made determinations and are already deferring to other jurisdictions for some portion of OTCD regulation – only 3 jurisdictions report having some deference arrangements in place as of July 2014 (Australia, Canada and the US). In the EU, the European Commission is in the course of proposing deference to be granted to a number of jurisdictions with respect to central clearing; and
• further decisions on deference by jurisdictions or individual regulators can be expected over time as the OTCD reform process progresses. Some jurisdictions report that they anticipate making deference decisions only when their own rules are in effect and when rules in other jurisdictions are also finalised.

View Feasibility study on approaches to aggregate OTC derivatives data, 19 September 2014