U.S. and European financial regulators, working to break a deadlock over the cross-border reach of derivatives rules, are poised to announce an agreement on how they’ll jointly oversee the $633 trillion global swaps market, according to three people familiar with the deal.
Commodity Futures Trading Commission Chairman Gary Gensler and Michel Barnier, the European Union’s financial services chief, are expected to announce as early as today how they’ll apply their rules to the global market, according to the people, who asked for anonymity because the talks are private.
The statement will describe how the U.S. and Europe will use mutual recognition of their rules to oversee banks including Barclays Plc, JPMorgan Chase & Co. and Citigroup Inc., the people said.
Steve Adamske, a CFTC spokesman, declined to comment.
Global regulators began increasing oversight of the swaps market after largely unregulated trades helped fuel the 2008 credit crisis and led to the rescue of American International Group Inc., a U.S.-based insurer who booked large amounts of swaps trades in Europe.
The CFTC has been putting in place new rules required by the Dodd-Frank Act designed to have most swaps guaranteed at clearinghouses that accept collateral from buyers and sellers to reduce risk. Gensler has proposed that the rules apply to many trades that currently are booked outside the United States. The agreement is expected to allow for some U.S. recognition of European regulation.
The international reach of CFTC swap-trading requirements has been one of the most controversial elements of the agency’s Dodd-Frank Act rules, prompting opposition from financial companies including Goldman Sachs Group Inc. and Barclays. The CFTC has faced criticism from European and Asian regulators for overreaching their authority.
The CFTC is facing a July 12 deadline to decide on guidelines for when its rules apply to overseas companies and offices of firms based in the U.S.
The guidelines, which are scheduled for a July 12 vote at the Washington-based agency, would be set to take effect in the market by the end of the year, two people with knowledge of the matter said earlier this week.
Mark Carney, chairman of the Financial Stability Board, has said that the FSB will report to the Group of 20 nations in September on efforts by regulators to resolve “outstanding cross-border issues” for swaps regulation, “including gaps, overlaps and inconsistencies.”
The FSB brings together regulators, central bankers and finance ministry officials from the G-20.