The US Commodity Futures Trading Commission (CFTC) has unanimously approved a substituted compliance framework for dually-registered central counterparties (CCPs) located in the European Union (EU), together with a comparability determination with respect to certain EU rules.
This action follows the historic agreement between the CFTC and the European Commission regarding dually-registered derivatives clearing organisations (DCOs)/CCPs and represents a major step in paving the way for the EU’s recognition of US CCPs. [See CFTC-EU Common Approach]
In the Notice of Comparability Determination for the European Union: Dually-Registered Derivatives Clearing Organisations and Central Counterparties (Determination) announced today, the CFTC determined that certain laws and regulations applicable in the EU provide a sufficient basis for an affirmative finding of comparability with respect to certain regulatory obligations applicable to DCOs that are registered with the CFTC and are authorised to operate as CCPs in the EU. The Determination will be published in the Federal Register and will be effective upon publication.
The Determination will allow the global derivatives market to continue to efficiently serve the many businesses that use it to hedge commercial risk by permitting EU CCPs already registered with the CFTC as DCOs (DCO/CCPs) and those seeking registration to provide services to US clearing members and clients while complying with certain corresponding EU requirements. The Determination reflects the CFTC’s efforts to ensure that CCPs on both sides of the Atlantic are held to high standards, thereby promoting financial stability.
The Determination follows extensive analysis by the CFTC’s and the EC’s staffs to understand whether differences in their regulatory regimes were significant. The Determination identifies those EMIR requirements that are comparable to the corresponding CFTC requirement(s) and comprehensive. By issuing this Determination, the CFTC further harmonises the CFTC and EMIR regimes without risking regulatory arbitrage while also enhancing the protection of customers.
Simultaneously, the CFTC’s Division of Clearing and Risk (DCR) issued a no-action letter providing limited relief for DCO/CCPs from the application of CFTC regulations to discrete aspects of a DCO/CCP’s non-US clearing activities.
