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August 29, 2023

CFTC Should Not Outsource Protection of U.S. Markets, Investors, and Taxpayers to Foreign Regulators with Questionable Track Records

Better Markets filed a comment letter with the Commodities Futures Trading Commission (“CFTC”) in response to a proposed comparability order for Non-Bank Swap Dealers from France and Germany and for financial reporting requirements from the European Union.

Why It Matters. When U.S. regulators determine that foreign law is comparable to U.S. law it allows financial firms to follow the foreign law rather than the U.S. law. In effect, such comparability determinations outsource the protection of U.S. taxpayers, financial system, and economy to foreign regulations and foreign regulators. However, many foreign regulators have a poor track record of effectively enforcing their own financial regulations and protecting their own citizens.  Some have allowed industry and competitive concerns to override critical financial protections, if not actually engaging in a race to the regulatory bottom. That is why U.S. regulators must ensure that any such determinations are robust, thorough, comprehensive, concrete, consistent, and based on true comparability, which is what the law requires

What We Said. The CFTC’s obligation to prioritize the protection of U.S. interests in the cross-border markets is particularly critical because of the many derivatives-related off-shore financial failures that the U.S. government and taxpayers had to bailout in connection with the 2008 financial crash. That is why the Dodd-Frank Act required cross-border comparability determinations to be substantive and not mere formalities; they are pivotal in shielding our economy from potential disasters. These determinations should stand as sturdy defenses, unwavering in their commitment to safeguarding U.S. interests in maintaining financial stability and avoiding crashes and bailouts.

The CFTC’s argument for comparability here falls far short of the legal requirements, which the CFTC itself de facto recognizes by the many critical substantive conditions it includes as requirements. If the laws and rules were in fact comparable, then these conditions would not be required. In addition, the proposed comparability order lacks a comprehensive analysis detailing the precise methods and reasoning used by the CFTC to establish that the European Union and U.S. frameworks would yield ‘equivalent results.’ Regrettably, it fails to provide substantial facts, information, or in-depth examination to substantiate its conclusions. Given the express statutory mandate, the context giving rise to the need to ensure comparability, and the importance of getting the determination right, more transparency and a more comprehensive explanation are imperative.

Bottom Line. The CFTC’s determination falls far short and fails the statutory requirements. This unreasonably and unacceptably exposes the U.S. taxpayers, financial system, and economy to unacceptable risk and, therefore, the CFTC should determine that there is not comparability in these cases.”

Read our full comment letters here.


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