CFTC Sets January 14, 2014 Effective Date for Cross-border Swaps Advisory | Practical Law

CFTC Sets January 14, 2014 Effective Date for Cross-border Swaps Advisory | Practical Law

The CFTC announced that its recently issued staff advisory on the application of Title VII Dodd-Frank swaps rules to certain cross-border swaps will become effective on January 14, 2014. The staff advisory clarified that swaps arranged, negotiated or executed by persons in the US must comply with CFTC transaction-level requirements if one of the parties to the swap is a registered swap dealer, regardless of the jurisdiction of organization or location of the counterparty.

CFTC Sets January 14, 2014 Effective Date for Cross-border Swaps Advisory

Practical Law Legal Update 4-550-5899 (Approx. 3 pages)

CFTC Sets January 14, 2014 Effective Date for Cross-border Swaps Advisory

by Practical Law Finance
Published on 04 Dec 2013 • USA (National/Federal)
The CFTC announced that its recently issued staff advisory on the application of Title VII Dodd-Frank swaps rules to certain cross-border swaps will become effective on January 14, 2014. The staff advisory clarified that swaps arranged, negotiated or executed by persons in the US must comply with CFTC transaction-level requirements if one of the parties to the swap is a registered swap dealer, regardless of the jurisdiction of organization or location of the counterparty.
On November 26, 2013, the CFTC issued No-action Letter No. 13-71 establishing a January 14, 2014 compliance date for Advisory Guidance No. 13-69. This advisory clarified that swaps arranged, negotiated or executed by persons in the US must comply with final Dodd-Frank Title VII transaction-level requirements if at least one of the parties to the swap is a swap dealer (SD) registered with the CFTC, regardless of the counterparty's location or jurisdiction of organization.
Affected parties will have until that date to implement policies and procedures designed to ensure that transaction-level requirements under Title VII of Dodd-Frank are met if a swap is arranged, negotiated or executed by a person in the US (for a complete list of transaction-level requirements, see Practice Note, The Dodd-Frank Act: Cross-border Application of Swaps Rules: Transaction-level Requirements). Advance Guidance No. 13-69 was issued on November 14, 2013 to close a loophole that parties were using to avoid compliance with these requirements (see Legal Update, CFTC Closes Cross-border Swaps Compliance Loophole).
The closure of this loophole has been met with industry criticism, as market participants argue that there is no demonstrated risk of entities avoiding the US regulatory regime under the loophole and that Advisory Guidance No. 13-69 is inconsistent with the CFTC's July 2013 guidance. The closure of the loophole is expected to disproportionately affect Latin American participants in the swaps market, which arrange and negotiate a large number of trades through the US with foreign counterparties, but which are less equipped to address regulatory requirements than similarly situated market participants in the US, Asia and Europe.
Note that, as reported by Reuters, the CFTC has indicated that its substituted compliance rules, which were scheduled to be implemented by December 21, 2013, are unlikely to be completed by that date. A delay of the substituted compliance rules would mean that, absent further no-action relief:
  • Swaps entered into with US persons would need to be Dodd-Frank compliant as of December 21, 2013.
  • Swaps between non-US persons that are arranged, negotiated or executed in the US would need to comply with Dodd-Frank transaction-level requirements as of January 14, 2014.
Additionally, derivatives and banking industry groups have sued the CFTC in federal court over its cross-border guidance (see Legal Update, CFTC Sued over Dodd-Frank Cross-border Swaps Rules). It is not yet clear what impact this may have on Dodd-Frank cross-border compliance dates.
For more information on the cross-border application of Dodd-Frank rules, see Practice Note, The Dodd-Frank Act: Cross-border Application of Swaps Rules.