July 3, 2013
Washington, DC – Today, Oregon’s Senator Jeff Merkley and Senator Carl Levin (D-MI), as well as Senators Tom Harkin (D-IA), Elizabeth Warren (D-MA), Jeanne Shaheen (D-NH), Barbara Boxer (D-CA), Richard Blumenthal (D-CT), and Dianne Feinstein (D-CA), urged the heads of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to close a massive loophole in current proposals for swaps regulation that allows American firms to evade the new rules entirely.
“Unfortunately, the current proposals to implement these much-needed reforms fail to address a large and serious risk,” the Senators wrote. “Both of your agencies’ proposals would allow U.S. firms to skirt the entire U.S.-based swaps regulatory regime (including any U.S. requirements for substituted compliance) simply by engaging in ‘non-guaranteed’ trading through foreign subsidiaries. The history of the financial crisis tells us that drawing regulatory distinctions based on narrow criteria, including over what today is believed to be ‘guaranteed’ or not, is a recipe for creating, not reducing, systemic risk.”
The Senators proposed specific suggestions on how to close that loophole, including extending swaps rules to any foreign affiliate where risk could “foreseeably” flow back to the U.S., and clarifying through prohibitions, disclosures, CEO certifications, and other limits the existence of a guarantee (or non-guaranteed status) for swaps by a foreign affiliate of a U.S. firm.
The Senators also urged the CFTC and the SEC to get the new rules done as soon as possible.
The full letter is available here