On July 23, the CFTC adopted a final rule (Final Rule) under the Commodity Exchange Act (CEA) – CFTC Reg. § 23.23 – that (i) addresses the cross-border application of registration thresholds and certain “entity level” and “transaction level” requirements applicable to swap dealers (SDs) and major swap participants (MSPs), and (ii) establishes a formal process, including a standard of review, for conducting comparability determinations regarding a foreign jurisdiction’s regulation of swap entities. The Final Rule permits a non-U.S. swap entity, or a foreign branch of a U.S. swap entity, to comply with a foreign jurisdiction’s swap standards in lieu of the CFTC’s corresponding requirements in certain cases, provided that the CFTC determines that such foreign standards are comparable to the CFTC’s requirements.
In addition, the CFTC adopted several tailored exceptions from, and a substituted compliance process for, certain “entity level” and “transaction level” requirements applicable to registered SDs and MSPs with respect to certain foreign-based swaps. The adopting release notes that “swap entities that avail themselves of these exceptions for their foreign-based swaps would be required to comply with the applicable laws of the foreign jurisdiction(s) to which they are subject, rather than the relevant [CFTC] requirements, for such swaps; however, notwithstanding these exceptions, swap entities would remain subject to the CEA and [CFTC] regulations not covered by the exceptions, including the prohibition on the employment, or attempted employment, of manipulative and deceptive devices….” The CFTC further noted that it expects swap entities to address any significant risk that may arise as a result of the utilization of one or more of the exceptions in their risk management programs.
The compliance date for the Final Rule is one year after publication in the Federal Register.