The uncertainty around the extent of the extra-territorial reach of the Dodd-Frank Act into the business of Canadian and other non-U.S. market participants has been a major concern. Regulators are well aware of this concern and have their own reasons to want to reduce regulatory conflict. It is top of their agenda as well. To that end, on November 28, regulatory authorities from various international jurisdictions (including the OSC and AMF) met in New York to discuss reform of the cross-border OTC derivatives market. It looks as though progress was made but much work is yet to be done.
While the authorities noted that complete harmonization across jurisdictions would be difficult, their joint release identified the need to reduce regulatory uncertainty and reduce the application of conflicting rules. Ultimately, the meeting, which included representatives from the Ontario Securities Commission, Quebec's Autorité des marchés financiers, the Australian Securities and Investments Commission, Brazil's Comissão de Valores Mobiliários, the European Commission and European Securities and Markets Authority, Hong Kong's Securities and Futures Commission, Japan's Financial Services Agency, the Monetary Authority of Singapore, the Swiss Financial Market Supervisory Authority, and the U.S. Commodity Futures Trading Commission and Securities and Exchange Commission, was intended to continue moving towards the goal of an enhanced regime of OTC derivatives regulation, as pledged by G-20 leaders in 2009.
Ultimately, the authorities reached agreement on a number of points from which to move forward. First, the regulators agreed to consult each other prior to making any final decisions regarding which derivatives products will be subject to mandatory clearing. Further, any decision by a regulator in one jurisdiction to subject a product or class of products to a clearing requirement will result in each of the other authorities subsequently considering whether to subject the same product to the same requirement in their domestic jurisdictions.
Second, the authorities agreed to attempt to enter into supervisory cooperation agreements and bilateral enforcement cooperation arrangements in order to enhance supervision and oversight of cross-border market participants, intermediaries and infrastructures.
Third, on the issue of timing, the authorities stated that they will make efforts to implement OTC derivatives reforms "quickly" and in a manner "consistent with an orderly implementation process" in each respective jurisdiction. Reasonable transition periods to facilitate implementation will be included in the process.
Finally, the authorities agreed to further consider the possible approaches to regulating persons, transactions and infrastructure in respect of cross-border activity where more than one set of rules applies. The approaches to be considered include (i) recognition, where market participants, intermediaries and infrastructures have substantially met regulatory requirements; (ii) registration and substituted compliance, where an entity has already complied with foreign regulations; (iii) transactions and substituted compliance, where compliance with foreign regulations may be substituted for compliance with applicable transaction-level requirements; and (iv) registration categories and exemptions that would allow entities to comply with different sets of regulatory requirements based on characteristics and activities.
Going forward, the authorities state that they will continue to regularly consult each other, with the next planned meeting scheduled for early 2013. Topics of consideration for future meetings include: (i) options to address identified conflicts and duplicative rules; (ii) the basis for determinations of comparability of regulatory regimes; and (iii) developing a process for consultation prior to making final determinations regarding which derivative products will be subject to mandatory clearing.