CFTC Issues Dodd-Frank Substituted Compliance Determinations for Non-US Jurisdictions | Practical Law

CFTC Issues Dodd-Frank Substituted Compliance Determinations for Non-US Jurisdictions | Practical Law

The CFTC has approved comparability determinations permitting SDs and MSPs located in six non-US jurisdictions to comply with certain swaps provisions of the Dodd-Frank Act through substituted compliance with the swaps rules of their home jurisdiction. The CFTC also granted no-action relief to SDs and MSPs in these jurisdictions from certain Dodd-Frank swap data reporting obligations for certain swaps.

CFTC Issues Dodd-Frank Substituted Compliance Determinations for Non-US Jurisdictions

by Practical Law Finance
Published on 31 Dec 2013 • USA (National/Federal)
The CFTC has approved comparability determinations permitting SDs and MSPs located in six non-US jurisdictions to comply with certain swaps provisions of the Dodd-Frank Act through substituted compliance with the swaps rules of their home jurisdiction. The CFTC also granted no-action relief to SDs and MSPs in these jurisdictions from certain Dodd-Frank swap data reporting obligations for certain swaps.
On December 20, 2013, the CFTC approved final comparability determinations for swaps rules applicable to swap dealers (SDs) and major swap participants (MSPs) in six non-US jurisdictions: Australia, Canada, the European Union, Hong Kong, Japan, and Switzerland. The CFTC deemed that non-US SDs and MSPs in these jurisdictions may comply with certain swaps rules under Title VII of the Dodd-Frank Act through compliance with regulations in their home jurisdiction. The CFTC also issued temporary no-action relief to SDs and MSPs in the six enumerated jurisdictions from certain final Dodd-Frank swap data reporting rules with respect to swaps with non-US counterparties that are guaranteed affiliates, or conduit affiliates, of a US person (see Related No-action Relief).
This determination was made just before the deadline set out in the CFTC's Interpretative Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations published on July 26, 2013 (the July 2013 Cross-Border Guidance), which stated that determinations on whether non-US SDs and MSPs would be able to comply with Dodd-Frank rules through substituted compliance would be made by December 21, 2013. For more information on the July 2013 Cross Border Guidance, see Practice Note, The Dodd-Frank Act: Cross-border Application of Swaps Rules: Final CFTC Cross-border Guidance and Related Rulemaking. All non-US SDs and MSPs that are not exempted by these substituted compliance comparability determinations or listed in a no-action letter were required to comply with the applicable rules in the Dodd-Frank Act by December 21, 2013.
A "comparable" comparability determination means that the CFTC has deemed the non-US jurisdiction's rules sufficiently comparable to the Dodd-Frank/CFTC rule covering that specific requirement. Thus, SDs and MSPs in those jurisdictions may comply with their home jurisdiction's swaps rules in place of the analogous Dodd-Frank CFTC final rules.
The following table summarizes the comparability determinations for certain entity-level requirements for non-US SDs and MSPs.¹ Other than for CFTC Regulation 3.3(e), which requires SDs and MSPs to produce an annual compliance report and stipulates the content thereof.
CFTC Rule
Australia
Canada
EU
Hong Kong
Japan
Switzerland
Chief Compliance Officer (CCO) CFTC Regulation 3.3
Comparable¹ ²
Comparable²
Comparable²
Comparable²
Comparable²
Comparable²
Swap Data Recordkeeping CFTC Regulations § 23.201, 23.203
Comparable⁴
Comparable⁴
Comparable⁴
Comparable⁴
Comparable
Comparable⁴
Risk Management Program CFTC Regulation 23.600
Comparable³
Comparable³
Comparable³
Comparable³
Comparable³
Comparable³
Monitoring of Position Limits CFTC Regulation 23.601
Comparable
Comparable
Comparable
Comparable
Comparable
Comparable
Diligent Supervision CFTC Regulation 23.602
Comparable
Comparable
Comparable
Comparable
Comparable
Comparable
Business Continuity CFTC Regulation 23.603
Comparable
Comparable
Comparable
Comparable
Comparable
Comparable
Research Conflicts CFTC Regulation 23.605(c)
Comparable
Comparable
Comparable
Comparable
Comparable
Comparable
Clearing Conflicts CFTC Regulation 23.605(d)
Comparable
Comparable
Comparable
Comparable
Comparable
Comparable
Undue Influence CFTC Regulation 23.605(e)
Comparable
Comparable
Comparable
Comparable
Comparable
Comparable
Availability of Information for Disclosure CFTC Regulation 23.606
Comparable⁴
Comparable⁴
Comparable⁴
Comparable⁴
Comparable
Comparable
Clearing Member Risk Management  CFTC Regulation 23.609
Comparable
Comparable
Comparable
No Determination. According to no-action letter 13-78, relief is not required for non-US SDs and MSPs established in Hong Kong since they are not required to comply with CFTC Regulation 23.609 (see below).
Comparable
No Determination. According to no-action letter 13-78, non-US SDs and MSPs established in Switzerland will have until March 3, 2014 to comply with CFTC Regulation 23.609.
² Other than for CFTC Regulation 3.3(f), which requires:
  • The CEO or CCO of a SD or MSP to certify that the annual compliance report is accurate and complete.
  • The annual compliance report to be furnished to the CFTC.
³Other than for CFTC Regulation 23.600(c)(2), which requires a SD or MSP to produce quarterly risk exposure reports and provide such reports to its senior management, governing body and the CFTC.
⁴The CFTC reserves the right to require a SD or MSP to provide direct access to or produce records required to be maintained under the CEA and CFTC regulations to CFTC staff, the staff of an applicable US prudential regulator, or the US Department of Justice.
Substituted compliance will be available for a broad range of entity-level requirements for all six jurisdictions as well as various major transaction-level requirements in the EU and Japan. For non-US SDs and MSPs located in the EU, the CFTC issued comparability determinations which enables non-US SDs and MSPs established in the EU to comply with the rules of their home jurisdiction as opposed to Dodd-Frank rules for:
  • Daily trading record requirements (CFTC Regulation 23.202).
  • Swap confirmation (CFTC Regulation 23.501).
  • Portfolio reconciliation (CFTC Regulation 23.502).
  • Portfolio compression (CFTC Regulation 23.503).
  • Swap trading relationship documentation (CFTC Regulation 23.504).
For non-US SDs and MSPs located in Japan, the CFTC issued comparability determinations for the transaction-level requirements under:
  • CFTC Regulation 23.202 (daily trading record requirements).
  • CFTC Regulation 23.504 (swap trading relationship documentation).

Related No-action Relief

In addition to the substituted compliance determinations, the CFTC also issued several related no-action letters:
  • No-action letter 13-74 extends relief to Singapore Exchange Derivatives Clearing Limited (“SGX-DC”) Section 4d(f) of the Commodity Exchange Act.
  • No-action letter 13-75 provides relief to non-US SDs or MSPs established in Australia, Canada, the European Union, Japan or Switzerland which are not part of an affiliated group in which the ultimate parent entity is a US SD or MSP, US bank, US financial holding company, or US bank holding company from:
    • the requirements of CFTC Regulation Parts 45 and 46 (SDR data reporting and historical swap data reporting, respectively) with respect to its swaps with non-US counterparties that are not guaranteed affiliates, or conduit affiliates, of a US person, until the earlier of either 30 days following the issuance of a comparability determination by the CFTC with respect to the SDR reporting rules (Part 45) for the jurisdiction in which the non-US SD or MSP is established, or December 1, 2014;
    • the requirements of CFTC Regulation Part 45 (SDR data reporting) with respect to its swaps with non-US counterparties that are guaranteed affiliates, or conduit affiliates, of a US person, until March 3, 2014; and
    • the requirements of CFTC Regulations Part 46 (historical swap data reporting) with respect to its swaps with non-US counterparties that are guaranteed affiliates, or conduit affiliates, of a US person, until April 2, 2014.
  • No-action letter 13-76 extends relief provided to Yeildbroker Pty Limited from Section 5h(a)(1) of the Commodity Exchange Act and CFTC Regulation 37.3(a)(1) until the earlier of May 15, 2014, or the date upon which Yieldbroker achieves SEF registration status.
  • No-action letter 13-77 provides relief to commodity trading advisors that are members of swap execution facilities (SEFs). Under CFTC Regulation 1.35(a), each member of a designated contract market (DCM) or SEF is required to keep full and complete systematic records. As part of this requirement, affected entities must comply with the rules of recording oral communications by December 21, 2013. The CFTC granted time-limited no-action relief to commodity trading advisors who are members of a SEF from the requirement to record oral communication under CFTC Regulation 1.35(a) until May 1, 2014. For more details on CFTC Regulation 1.35(a), swaps voice recording rules, see this article provided by Thomson Reuters Accelus Compliance Complete, which provides regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges.
  • No-action letter 13-78 provides relief to non- US SDs and MSPs located in the six enumerated jurisdictions (Australia, Canada, the European Union, Japan, and Switzerland) from certain entity-level internal business conduct requirements. Under the CFTC's July 13, 2013 Exemptive Order Regarding Compliance With Certain Swap Regulations (the “Exemptive Order”) (see Legal Update, CFTC and EU Reach Accord on Derivatives Regulation; CFTC Issues Cross-border Guidance and Relief), certain non-US SDs and MSPs were granted permission to delay compliance with certain entity-level requirements. Relief under the Exemptive Order expired on December 21, 2013. This no-action relief allows non-US SDs and MSPs established in Australia, Canada, the European Union, Japan, and Switzerland until March 3, 2014 to comply with CFTC Regulations 23.600(c)(2) and 23.608. The CFTC noted that Hong Kong is excluded, because as of December 21, 2013, non-US SDs and MSPs established in Hong Kong are not required to comply with CFTC Regulations 23.600(c)(2), 23.608, or 23.609, and thus no relief for any such SD or MSP is necessary. In addition, non-US SDs or MSPs established in Switzerland will have until March 3, 2014 to comply with CFTC Regulation 23.609.