New York Times: Official warns of regulatory arbitrage

30 March 2011

Bart Chilton, a commissioner at the Commodity Futures Trading Commission, warned that if financial regulators in the US and Europe enact conflicting rules for the derivatives industry, banks and other financial firms will be free to skirt the new rules.

Mr Chilton, in a speech to the Goldman Sachs Commodity Conference in London, said varying proposals to regulate the derivatives industry must be “harmonised.” Inconsistent rules would invite a “race to the bottom,” he said. The comments by Mr. Chilton, a Democrat, echo statements by banks and Congressional Republicans, who argue that tougher rules in the United States could push profits overseas.

The European Commission, the European Union’s executive body, has floated proposals that largely mirror Dodd-Frank’s requirements for mandatory derivatives clearing. But the European rules face several procedural hurdles before they are enacted. Mr Chilton offered to work closely with European regulators as they put the finishing touches on their respective proposals. He warned that inconsistent rules could encourage banks to pick and choose where they do business, based on where regulations are the most lenient. Dodd-Frank loses its authority at the United States border, and if the European rules are weaker than the law, derivatives trading is likely to shift overseas.

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