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16 December 2013

WSJ: CFTC is poised to expand its reach overseas

The CFTC is moving to force overseas financial firms to comply with certain US rules, according to an official familiar with the process, a move likely to stoke criticism that the US is bidding to become the de facto global financial regulator.

The CFTC is preparing to say that multiple rules developed by the EU and five other jurisdictions governing so-called swaps aren't strict enough, clearing the way for the CFTC to impose its regulations on much of the $693 trillion global swaps market, the official said. The US agency had given overseas regulators time to write their own rules governing swaps, a type of financial product at the heart of the 2008 financial crisis that allows firms and their clients to hedge against risks or bet on an asset's value.

Yet the CFTC is now set to declare many of those efforts insufficient, including rules governing how firms report swaps to a data repository. CFTC staff are still finalising their recommendations, and they could change before the full agency is expected to vote on them this week, according to people familiar with the matter. Such a move would be the latest by the US to impose its rules on foreign financial firms. Last week, US regulators drew large overseas banks with US operations into the long-delayed Volcker rule, requiring that firms with US branches or significant US personnel comply with the ban on so-called proprietary trading. US regulators also are preparing to apply tough capital standards to overseas banks with US operations, a move that has drawn objections from global policy-makers and multinational financial institutions.

Top US officials, including Treasury Secretary Jacob Lew, have repeatedly called on overseas regulators to quickly implement financial rules, warning that the US will act if others don't: "Other nations are moving far more slowly than the US", he said, adding a warning that global regulators "must avoid a race to the bottom". Mr Lew said he will push his international counterparts to "bear down even more forcefully on implementation" at the upcoming G20 countries' finance ministers meeting in Australia.

Overseas policy-makers and industry trade groups have criticised the US push to impose its rules overseas, saying such a move flouts the G20 agreement to coordinate international rule-making through the Financial Stability Board, an international regulatory group.

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