The leaders of regulatory authorities from Australia, Brazil, the European Union, Hong Kong, Japan, Canada (Ontario and Quebec), Singapore, Switzerland and the United States met on November 28, 2012 to discuss reform of the over-the-counter (OTC) derivatives market.
In their joint statement, the authorities confirmed that, as OTC derivatives operate in a global market, they support the adoption and enforcement of robust and consistent standards in and across jurisdictions to mitigate risk, improve transparency and protect against market abuse, prevent regulatory gaps and reduce the potential for arbitrage opportunities, and foster a level playing field for market participants, intermediaries and infrastructures.
However, it was said that, while there should be coordination among jurisdictions regarding the regulation of cross-border activities, complete harmonization – the perfect alignment of rules across jurisdictions – would be difficult as it would need to overcome jurisdictions' differences in law, policy, legislative and regulatory processes, markets and implementation timing.
It was therefore recognized that national authorities have the ultimate responsibility and authority to protect against all sources of risk to their markets. Legal systems and market conditions differ among jurisdictions and due account should be taken of such differences in determining the cross-border application of laws and regulations, the regulators said.
During their discussions, the participants at the meeting also identified various potential conflicts, inconsistencies, and duplicative requirements within their respective rules, and will continue to discuss measures to ameliorate the challenges they raise.
In that regard, they stressed the importance of developing practical solutions with respect to any conflicting application of rules; of identifying inconsistent or duplicative requirements and attempting to reduce the regulatory burdens associated with such requirements; and in identifying gaps and reducing the potential for regulatory arbitrage.
Keeping in mind the G-20 commitments to implement key OTC reforms by end-2012, the participating regulators therefore agreed to consult with each other prior to making any final determinations regarding which derivatives products will be subject to a mandatory clearing requirement, and committed that once one of them decided that a certain product or class of products should be subject to a clearing requirement, then each will consider whether the same product should be subject to the same requirement in its jurisdiction.
In order to facilitate an orderly transition with respect to new OTC derivatives regulatory requirements, they agreed to a reasonable, limited transition period to facilitate the implementation of cross-border regulatory requirements in appropriate circumstances and in consultation with other jurisdictions.
The authorities will meet in January 2013 to inform each other of the planned timing of the finalization and implementation of their rules, and advise of possible transition periods.
The participants also committed to regular general meetings to consult with one another. In particular, they will develop a process and a means for consulting with each other prior to making any final determinations regarding which derivatives products will be subject to a mandatory clearing requirement.
In addition to all of the above, the national regulators also stressed their continued support for the continued development and setting of international standards by the International Organization of Securities Commissions and other standard setting bodies and intend to remain active in its various workstreams related to OTC derivatives, as well as for the efforts of the Financial Stability Board in ensuring coordination among international standard-setting bodies..
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