OTC Derivatives Regulators Group report to G20 meeting of Finance Ministers and Central Bank Governors of 18-19 April 2013

20 April 2013

The principals of the authorities with responsibility for the regulation of the OTC derivatives markets in Australia, Brazil, the EU, Hong Kong, Japan, Ontario, Quebec, Singapore, Switzerland and the US have held four meetings to discuss reform of the OTC derivatives market.

The principals recognise that the OTC derivatives market is a global market and firmly support the adoption and enforcement of robust and consistent standards in and across jurisdictions. This will help further the G20 regulatory reform agenda for OTC derivatives markets to mitigate risk, improve transparency and protect against market abuse, and to prevent regulatory gaps, reduce the potential for arbitrage opportunities, and foster a level playing field for market participants, intermediaries and infrastructures.

They also recognise the need to reduce regulatory uncertainty and provide market participants, intermediaries and infrastructures with sufficient clarity on laws and regulations by avoiding, to the extent possible, the application of conflicting rules to the same entities and transactions. They also acknowledge the need to take into account, among other factors, minimising the application of inconsistent and duplicative rules.

It is clear that coordination among jurisdictions regarding the regulation of cross-border activities should facilitate the implementation of the objectives of the G20 regulatory reform agenda for the OTC derivatives market. However, complete harmonisation - perfect alignment of rules across jurisdictions - is difficult, as it would need to overcome jurisdictions' differences in law, policy, markets and implementation timing, as well as take into account the unique nature of jurisdictions' legislative and regulatory processes.

The principals recognise that national authorities have ultimate responsibility and authority to protect against all sources of risk to their markets, and that statutory and regulatory requirements of each jurisdiction are core components of each respective market. 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 principals also recognise that conflicting or inconsistent cross-border application of rules to market participants, intermediaries, infrastructures and products may inhibit the execution or clearing of certain cross-border transactions or impose additional compliance burdens. The principals further recognise that regulatory gaps may present risks to financial markets and provide the potential for regulatory arbitrage.

The principals have reached agreement on the way forward in a number of areas:

• Agreement was reached on a common approach to both the treatment of gaps between laws in respect of clearing and trading obligations and the process for consulting one another on clearing determinations.
• It was further agreed that the authorities would provide information to the group on
  • the timing of the implementation of their respective rules,
  • the scope and conditions of their substituted compliance, equivalence or recognition regimes, and
  • the approaches the authorities will take to determining comparability of foreign laws for the purposes of granting substituted compliance, equivalence or recognition.
• In a manner consistent with their respective legal regimes and the achievement of the policy objectives, the principals agreed that the authorities would consult with each other prior to making any final determinations regarding which derivatives products will be subject to a mandatory clearing requirement. The principals also committed that once one authority decides that a certain product or class of products should be subject to a clearing requirement, then they will each consider whether the same product should be subject to the same requirement in their jurisdictions, having regard to the characteristics of their domestic markets and in accordance with the applicable determination processes in their respective legal regimes.
• The principals agreed to a documented process for consulting one another on mandatory clearing determinations, founded on the recommendations of the IOSCO requirements for mandatory clearing. The objective of the agreed process is to harmonise mandatory clearing determinations across jurisdictions to the extent possible and where appropriate, subject to jurisdictions' determination procedures.
  • It was agreed to add an element of exchanging information on any phase-in periods to the documented process in respect of mandatory clearing determinations.

Full report

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