On January 3, 2014, the CFTC extended temporary no-action relief, until September 15, 2014, from its controversial Dodd-Frank cross-border swaps staff advisory on the US swaps activities of non-US swap dealers (SDs) and major swap participants (MSPs). The staff advisory requires non-US SDs and MSPs (whether or not affiliates of a US person) to comply with Dodd-Frank Title VII transaction-level requirements (including clearing and real-time data reporting), even when entering into a swap with a non-US person that is not a guaranteed affiliate or a conduit affiliate of a US person if the SD or MSP uses personnel or agents located in the US to arrange, negotiate or execute the swap (see Legal Update, CFTC Closes Cross-border Swaps Compliance Loophole). The advisory was scheduled to become effective on January 14, 2014 (see Legal Update, CFTC Sets January 14, 2014 Effective Date for Cross-border Swaps Advisory). In an unusual action, the CFTC also requested public comment on the advisory nearly two months after its November 14, 2013 release. The staff advisory is a focal point of the lawsuit filed last month by three banking industry groups in the US District Court for the District of Columbia (see Legal Update, CFTC Sued over Dodd-Frank Cross-border Swaps Rules).

The lawsuit alleges that by issuing a series of informal guidelines and staff advisories, the CFTC illegally bypassed more rigorous and formal rulemaking requirements and expanded the scope of its regulatory authority to include a wider array of derivatives trading activities of these non-US entities. The CFTC did not address why it requested public comment on the staff advisory almost two months after its release. However, some view the gesture as a conciliatory move to the market, in light of the lawsuit, that could signal a softer approach to come from incoming CFTC leadership following the departure of outgoing Chairman Gary Gensler (and a number of other high ranking CFTC officials) who often had a contentious relationship with banking groups.

CFTC No-action Letter 14-01 extends from January 14, 2014 to September 15, 2014 the previous relief granted to non-US SDs from all applicable Title VII Dodd-Frank swaps transaction-level requirements under the Commodity Exchange Act (CEA), including clearing and real-time data reporting. For a list of transaction-level requirements, see Practice Note, The Dodd-Frank Act: Cross-border Application of Swaps Rules: Transaction-level Requirements. Relief was provided to non-US SDs (whether or not they are affiliates of a US person) from requirements to comply with transaction-level requirements when entering into swaps with non-US persons that are not guaranteed affiliates or conduit affiliates of a US person using personnel or agents located in the US to arrange, negotiate or execute such swaps. The relief was granted in order to enable non-US SDs to organize their internal polices, procedures and personnel to be in compliance with these transaction-level requirements once the advisory becomes effective.

The CFTC also requested public comment regarding certain compliance issues, including but not limited to:

Public comments are due by March 10, 2014 (60 days after publication of the request in the Federal Register).

For details on cross-border application of Dodd-Frank swaps rules including recent releases and final rules, see Practice Note, The Dodd-Frank Act: Cross-border Application of Swaps Rules. For information on SDs and MSPs, see Practice Notes, Is Your Client a Swap Dealer or Major Swap Participant? and The Dodd-Frank Act: Requirements for Swap Dealers and MSPs Checklist.