WASHINGTON, Dec. 13, 2012- A subcommittee of the House Agriculture Committee met today to hear from international and U.S. derivatives regulators with respect to the Dodd-Frank Act and its cross-border rules.
According to the committee, today’s hearing marked the first time Congress has heard from international regulators about the financial regulatory reform law, which President Barack Obama signed in 2010.
“I think that fact alone should demonstrate that the rest of the world is very serious about getting derivatives reform right, and the United States should reciprocate that level of concern,” said House Agriculture Committee Chairman Frank Lucas, R-Okla., acknowledging the witnesses from the Financial Services Agency of Japan and the European Commission.
Among several concerns surrounding the Dodd-Frank regulations are those relating to the law’s international scope, and how they would coordinate with foreign rules. Lucas noted that “without proper coordination, American end-users will face higher costs because it will cost more or be impossible for some of them to access the global markets to manage risk.”
Subcommittee on General Farm Commodities and Risk Management Chairman Mike Conaway, R-Texas, said international regulators are concerned the global derivatives market could become regionalized as institutions conduct more transactions within their home jurisdictions. “Such an outcome would concentrate risk in various economies and sectors of the world,” he said.
A Republican commissioner at the CFTC, Jill Sommers, testified “that more time is needed to facilitate an orderly transition to a regulated environment. The task not going to be easy and we have a long way to go.”
Sommers said she hopes the Commission will issue “clear and concise relief from having to comply with various Dodd-Frank requirements, for both domestic and foreign swap entities, until we have a better sense of the direction in which we are all headed.”
Patrick Pearson, the head of the Market Infrastructure Unit at the European Commission said the CFTC and his commission must agree in how to coordinate their regulatory laws, because if not, “conflicts, inconsistencies and gaps will persist, and we believe that trades will not take place, will not be able to be cleared, and will, at best, be reported in a fragmented manner to repositories.”
Pearson added that “the question is not what the rules say, it’s whether we are willing to defer to each other’s rules. Otherwise the systems will not work.”
The chairman of the International Organization of Securities Commissions (IOSCO) in Tokyo, Masamichi Kono, said “starting the implementation of US regulations under the current circumstances has already created uncertainty in the markets.”
Noting that international regulators agreed during a November meeting to cooperative better with each other regarding cross-border regulation, Kono said “it is a huge challenge, but one that has to be pursued if we are to have globally interconnected financial markets that serve well to help growth in the real economies worldwide.”
Commissioner Bart Chilton, one of three Democrats on the CFTC panel, said the agency should include a six-month delay from the time a cross-border rule is finalized to when it is implemented.
“This would give markets and participants time to comply with the new regulatory environment and also would provide assurance to global markets and regulators that we are not causing unnecessary market disruptions,” Chilton said.
On Wednesday, CFTC Chairman Gary Gensler testified on cross-border issues, as well as the entire scope of the derivatives title of the Dodd-Frank Act, in a hearing before the House Financial Services Committee.
“Dodd-Frank is a perfect illustration of how dangerous it is for Congress to rush through important legislation,” Chairman Spencer Bachus, R-Ala., said at the hearing. “Two-and-a-half years after the President signed the bill into law, we still don’t know how it is going to work or even if it is going to work.”
Gensler testified that in enacting Dodd-Frank, “Congress recognized the basic lessons of modern finance and the 2008 crisis. During a default or crisis, risk knows no geographic border.”
“We’ve made great progress internationally on an aligned approach to reform,” he said. “We are committed to working through any instances where the CFTC is made aware of a conflict between U.S. law and that of another jurisdiction.”
During the House Agriculture Committee hearing today, exiting Congressman Leonard Boswell, D-Iowa., noting that “I’m out the door, I know that,” commented on resource issues of the CFTC. He said Congress should “at least give the commission the tools, the people they need to do the job we’ve asked them to do.”
Also commenting on CFTC issues overall, Subcommittee Ranking Member David Scott, D-Ga., added “it seems we’ve had countless hearings on issues before us today, so much so they’re starting to blur together. Here we are once again trying to get answers to the questions we’ve been asking since the beginning.”
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