In light of the recent discussions going on in the US between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) around the introduction of new data repositories and reporting requirements for the swaps market, the European Securities and Markets Authority has sent a letter to both regulators stressing the need for them to be mindful of global data standards and foreign regulatory supervision. The recently established pan-European regulator raises some concerns about the CFTC’s proposed rules regarding foreign swap data repositories and the lack therein of the recognition of reporting requirements and data formats mandated in other jurisdictions.
ESMA notes that, as they stand, the US rules would force swap data repositories based in Europe and elsewhere to report directly to US regulators as well as their own national regulators. These bodies and their participants may therefore be forced to adopt multiple data formats to comply with the requirements and be subject to on site inspection by the CFTC with regards to scrutiny of their data. The letter to the CFTC states: “This would in practice be very challenging for regulated entities and would significantly raise the costs for both the industry and supervisors. Moreover, this system would raise concerns about the possibility for the CFTC to carry out on-site inspections on entities based in Europe that are supervised by European authorities.”
The European regulator is instead suggesting that the SEC and CFTC should cooperate more closely with other regulators in order to “ensure the application and enforcement of equivalent rules and to guarantee access to the information needed for regulatory purposes and not necessarily to all data and records held by a foreign swap data repository”. After all, the notion of all this data flying about the place direct from repositories could also potentially pose a privacy and security risk.
ESMA refers the US regulators to its own proposals regarding trade repositories, which state that third country regulators will be recognised as equivalent to domestic supervisors and memorandums of understanding will be drawn up regarding information sharing between these regulators (provided the relevant criteria are met, of course). It highlights the “efficient exchange of information” between these authorities as the more sensible option.
This proposal is likely to prove popular within the practitioner community, given the resulting reduction in the reporting burden and greater global cooperation on the issue of standards required. European firms in particular are likely to be wary of facing the direct glare of US regulators with regards to their swaps data management practices.
Both letters are available to download below (although they are almost identical in content).
Let’s hope the Letter from America is not too long in coming with the US regulators’ responses.