By Michelle Price
WASHINGTON (Reuters) – The United States is worried that European regulators may seek direct oversight of U.S.-based clearing houses as part of regulatory changes sparked by Britain’s decision to leave the European Union, a top U.S. regulator said on Monday.
The comments by Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC), signal Europe and the United States may be heading for another major stand-off over cross-border regulation of clearing houses, having reached a hard-fought agreement on the matter just last year.
Clearing houses guarantee financial trades in case either party defaults.
The European Commission said in May it would review its rules for regulating clearing houses based outside the European Union, known as “third-country” clearers, amid fears Brexit could leave large chunks of euroclearing stranded in London.
The commission said the review was necessary because deficiencies in its existing rules meant EU authorities may not become aware of risks to the EU financial system posed by overseas clearing houses.
But Giancarlo said a 2016 deal recognizing the comparability of U.S. and EU regulation should stand, and he indicated the U.S. would not agree to increased scrutiny of its clearing houses by the EU as a potential result of its review.
“For us, the issue is whether the EU will seek to exercise direct oversight over other third-country (clearing houses) – including U.S.-based ones. This is a major concern for the United States,” Giancarlo told a conference hosted by the International Swaps and Derivatives Association in Washington D.C.
“I understand and I respect Europe’s need to supervise some critical (clearing houses) to ensure that their activities do not import unacceptable systemic risk into Europe. The CFTC has a similar responsibility. Yet, the CFTC and the EU spent three years discussing those concerns at length. We made a deal,” he added.
The CFTC chair spent last week in Europe meeting with regulators there as part of broader U.S.-EU discussions over cross-border trading and clearing rules.
Giancarlo said on Monday regulators should defer to each other’s regulatory regimes, adding that overlapping rules, inconsistencies and legal uncertainty could threaten global financial stability.