US and EU regulators have announced a ‘path forward‘ on approaching cross-border derivatives regulation that will allow firms operating internationally to comply with only one set of OTC trading requirements, rather than implementing both Dodd-Frank and EMIR.
For a long time it seemed that there would be no agreement on the ‘equivalency’ between Dodd-Frank and EMIR OTC derivatives rules, meaning that firms that operate transatlantically would need to implement two sets of conflicting regulations at the same time. While both sets of policy are ‘essentially identical’, there are a myriad of legal and technical challenges to overcome in order to comply with both. Trade reporting, risk mitigation, collateral allocation and mandatory clearing requirements all contain different definitions, rules and legal and technical requirements that would create huge administrative costs if they were to be implemented concurrently.
Both sides aim to conclude these discussions as soon as possible, at which stage the substance of relevant relief awarded by the CFTC will be reflected in its guidance relating to substituted compliance, as approved by its principals, while the EU equivalence decisions will have been in place and, where necessary, amended to reflect this partnership. For the future, they have agreed to continue to work collaboratively and to consider any unforeseen implementation effects that might arise in the application of their respective rules.
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