WASHINGTON (Reuters) - The European Union is confident it can end a rift with the United States over how to write common rules for financial derivatives, the bloc’s top bank regulation official said on Wednesday.
The issue could come to a head this week, as the U.S. derivatives regulator needs to decide by Friday how its rules for the $630 trillion swaps industry apply to foreign companies that want to deal with U.S. businesses.
Brussels has openly complained in the past about the aggressive view of the Commodity Futures Trading Commission’s chairman, Gary Gensler, who insists on a broad application of U.S. rules to foreign companies.
But Michel Barnier, who is due to meet Treasury Secretary Jack Lew and other top U.S. officials in Washington next week, said the two sides were close to an agreement.
“I am confident in our joint capacity, in our very strong relationship, to reach an agreement between America and Europe, including the topic of derivatives and technical standards for derivatives,” Barnier told a news conference.
At stake is the CFTC’s so-called cross-border guidance, which would impose cumbersome regulatory requirements on foreign companies, something Europe and Asia say is redundant because they are drawing up similar rules themselves.
The issue has not only split Europe and America: it is also far from clear whether Gensler will succeed in gathering the required three votes from his fellow commissioners in favor of the plan at a meeting scheduled for Friday.
Friday is the last day the CFTC can decide as a broad temporary relief for foreign companies expires, and having no rule in place would cause regulatory chaos and invoke the wrath of already critical politicians.
The rules include trading requirements such as registration and data reporting and would make swaps markets less opaque after the 2007-09 credit meltdown, and prevent risk affecting U.S. companies from building up abroad.
Reuters first reported that Barnier was closing in on a deal with Gensler - something that could be a powerful bargaining chip for the former Goldman Sachs banker to push the plan through the divided commission.
The stakes are high, with banks heavily lobbying against new rules to rein in the lucrative market, dominated by Wall Street banks such as Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co.
Big foreign banks such as Deutsche Bank AG, Credit Suisse Group AG and Barclays Plc feared they would have to deal with the cost of both U.S. rules and those from their home countries.
Reporting by Douwe Miedema; Editing by Maureen Bavdek