WASHINGTON, D.C.—Cantrell Dumas, Director of Derivatives Policy, issued the following statement in connection with the filing of a comment letter in response to a proposed comparability order from the Commodity Futures Trading Commission (CFTC).
“Granting this order would in effect outsource the protection of U.S. markets and taxpayers to Mexican authorities acting under a set of requirements that are weaker than what U.S. law requires. It would thereby allow swap dealers to avoid compliance with the financial protection rules for the swaps markets that the Dodd-Frank Act requires.
“The CFTC’s proposed order finds that the capital and financial reporting requirements for nonbank swap dealers domiciled in Mexico (which are affiliates of the largest Wall Street banks) are comparable to the capital and financial reporting requirements under U.S. law. But the requirements are in fact not appear comparable. To make this determination and claim to find comparability, the CFTC has proposed numerous, material conditions to compensate for the acknowledged significant gaps in the Mexican legal framework.
“However, even with the imposed conditions, the proposed order does not provide sufficient analysis as to exactly how and why the CFTC concluded that the Mexican and American frameworks would produce ‘comparable outcomes.’ It relies too much on conclusionary statements that the two regimes are comparable without disclosing sufficient facts, data, or analysis to support such claims. Given the inherently difficult and predictive analysis of likely outcomes, a much more thorough explanation than that offered in the proposed order is required.
“The stakes are incredibly high when it comes to ensuring the financial stability of the banks and nonbanks participating in the derivatives markets, as proved by the 2008 crash. Of particular relevance here, foreign financial firms, including foreign affiliates of U.S. financial firms like those here seeking Mexican regulators, were key actors during the financial crisis, engaging in high-risk and often socially useless activities, suffering existential instability, and ultimately requiring massive bailouts at the expense of U.S. taxpayers.
“Importantly, finding a foreign law or rule is not comparable is not only legally required but also fair and reasonable. These firms may still fully operate in U.S. markets, provided they comply with U.S. law and rules that protect those markets, market participants, the financial system and U.S. economy. That is what Congress intended, absent a truly comparable set of foreign requirements. Nor is that result unreasonably burdensome, as the applicants here, like many foreign dealers, are affiliates of huge U.S. banks that are thoroughly familiar with the U.S. requirements and quite capable of shouldering the compliance costs.
“We understand and appreciate that the CFTC has a long history of regulatory cooperation with the Mexican Commission. But a positive regulatory rapport with another country is no substitute for strong substantive regulation and oversight of the international and risk-laden swaps markets. The CFTC must fulfill its duty under the Dodd-Frank Act to protect the U.S. financial system and reject this proposed comparability determination.”
You can read our full public comment letter here.
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