* EU regulation chief warns rules could confuse EU banks
* Barnier writes to Washington asking for delay
By John O'Donnell
BRUSSELS, April 23 The European Commission has
urged regulators in Washington to delay elements of new
derivatives regulation, fearing that confusion surrounding some
of the rules will harm EU banks operating in the United States.
The U.S. Commodity Futures Trading Commission (CFTC) and the
Securities and Exchange Commission (SEC) finalised rules last
week that will determine which firms involved in trading swaps
must register with regulators and back up trades with more
capital and collateral.
The Dodd-Frank financial reform law calls on regulators to
police the swaps market more closely after widespread ignorance
about swaps exposure, especially at insurer American
International Group, exacerbated the financial crisis.
The rules are the latest step in a global bid to reform
opaque and unpredictable derivatives markets, and follow an EU
move earlier this year to overhaul regulation.
Michel Barnier, the European commissioner in charge of
financial regulation, is, however, concerned about how the new
rules will affect EU firms and has written to the U.S. Treasury,
the CFTC and the SEC, asking them to delay certain provisions.
"Commissioner Barnier has sent letters... encouraging them
to delay the swap dealer registration process as regards EU
firms until there is legal clarity about the substantive
conditions that such registration will entail," a spokeswoman
for the commissioner said in a statement.
Under the Dodd-Frank Act firms using derivatives must
register as 'swap dealers' with the U.S. authorities, a
requirement that could apply to EU groups active on U.S.
Brussels is worried that such a requirement would mean EU
firms were subject to U.S. rules that would overlap with EU law.
"These EU firms are already subject to strict regulation and
supervision in the EU," the spokeswoman added.
"The 'swap dealer registration' rules are creating confusion
to EU banks operating in the US, as the substantive conditions
that will apply are not yet known."
"The (European) Commission has consistently argued that new
global regulation on (over-the-counter) derivatives must be
coherent and avoid exposing firms to overlapping or diverging
requirements in different jurisdictions," Barnier's spokeswoman
The CFTC originally said in December 2010 that firms would
be counted as swap dealers if they traded more than $100 million
in swaps over a 12-month period.
Following a push by energy firms and big commodity traders,
that threshold has been bumped up to $8 billion for most asset
classes in an initial phase-in.
Derivatives, such as options, futures and swaps, derive
their price from the underlying asset, with such contracts drawn
up between parties setting out conditions under which the
contract may or may not pay out.
The opacity of the market for such instruments led
billionaire investor Warren Buffett to describe them as weapons
of financial mass destruction.
The nature of the market for credit default swaps (CDS), for
example, made it difficult to predict the fallout of a Greek
debt default or similar dramatic event.
Earlier this year, the European Union agreed to overhaul
regulation of the roughly $700 trillion derivatives market.
The new regime, which could be largely in place by the end
of 2012, will overhaul a market that boomed in the decade before
the economic crash and was blamed for amplifying the crisis by
hiding risks from regulators.