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“International regulators have not yet agreed upon how new derivatives rules will apply to cross-border transactions involving entities in different regulatory jurisdictions”, said Ryan McKee, senior advisor with Chatham Financial’s regulatory services advisory group. “Complying with one set of rules is challenging enough, and until international regulators act, many end-users will be subject to two sets of rules for the same transactions – even for those that are within the same company.”
Regulators are currently discussing a system of recognition whereby counterparties in different jurisdictions can comply with one set of rules but satisfy both regimes’ obligations, so long as the rules are designed to produce equivalent outcomes. Until such a system is put in place, Dodd-Frank will apply for any transaction in which a US entity is a party and EMIR will apply whenever an EU entity is a party.
According to the survey, end-users are underprepared for both regimes. 44 per cent of respondents indicated that they were unsure of their firm’s status under EMIR, signalling a need for further understanding of the provision’s applicability to derivatives end-users who operate or transact with counterparties located in Europe. 10 per cent stated that they did not yet know if Dodd-Frank compliance requirements apply to their firm.
“With the compliance phase for US and EU regulations now upon us, derivatives end-users face an environment that is as complex as it is uncertain”, said Luke Zubrod, director of Chatham Financial’s regulatory services advisory group. “Right now, as many firms are working toward complying with their home country regulations, they’re just beginning to scratch the surface of additional regulations stemming from the jurisdictions of their counterparties. This means additional cost, confusion and uncertainty – the very factors end users enter into derivatives to avoid.”