WASHINGTON May 21 Foreign countries are being
too critical and potentially hurting delicate negotiations with
U.S. regulators over how broadly they should apply new
over-the-counter derivatives rules to trades that cut across
borders, U.S. Treasury Secretary Jack Lew said on Tuesday.
Lew's comments, made during testimony before the Senate
Banking Committee in a broad-ranging hearing on regulatory
issues, marked a rare occasion where he publicly waded into the
thorny debate over cross-border regulations for swaps.
Lew told lawmakers that an April 18 letter to him signed by
foreign officials including European Commissioner Michel Barnier
In that letter, the finance ministers complained about a
"lack of progress" in developing workable cross-border rules
with the U.S. Commodity Futures Trading Commission and U.S.
Securities and Exchange Commission, the two independent
regulators charged with overseeing the $630 trillion
"An approach in which jurisdictions require that their own
domestic regulatory rules be applied to their firms' derivatives
transactions taking place in broadly equivalent regulatory
regimes abroad is not sustainable," said the letter, which was
signed by nine officials from around the world.
"I did say to them quite directly that it was not a helpful
way to promote conversations with two independent regulatory
agencies to write a letter like that that didn't even reflect
the state of affairs," Lew said, in response to questioning by
Senate Banking Committee Ranking Member Mike Crapo.
He added that the SEC and CFTC have been "making real
progress" on the issue.
The SEC and the CFTC won broad new powers in the Dodd-Frank
law to police the swaps market. A provision in the law calls for
them to extend their rules overseas if trading in other
countries could have a "direct and significant" effect on the
However, there has been a major debate over how to interpret
Foreign regulators have voiced strong opposition to an
initial proposal put forth last year by CFTC Chairman Gary
Gensler, saying it was far too aggressive and could lead to
The CFTC has since scaled back the scope of its plan through
Meanwhile, earlier this month the SEC released its own
proposal for how to address cross-border trades.
The SEC's proposal is considered by most to be a
middle-of-the-road approach between what the CFTC proposed and
what foreign regulators have demanded.
It has won some praise so far from Wall Street, but was
harshly rebuked by liberal groups as well as in an opinion piece
in the New York Times, which accused the agency of caving into
Wall Street's demands.
The SEC's Trading and Markets Acting Division Director John
Ramsay late last week wrote a response to the paper criticizing
"The rules that the SEC has proposed are robust and designed
to address systemic risk flowing back to American shores while
also promoting strong rules around the world," Ramsay wrote.