WASHINGTON (Reuters) - The U.S. derivatives regulator should extend the October deadline for foreign banks to register as swaps dealers and face a host of tough new rules, a foreign bank and an association that represents the banks said in letters posted Thursday.
Societe Generale and the Institute of International Bankers (IIB) urged the Commodity Futures Trading Commission (CFTC) to push back the registration date because the CFTC has still not finalized key guidance that will tell the banks exactly what rules they have to comply with after registering.
“Our board is concerned that it might not be prudent to expose SG to new and extensive regulatory oversight if the extent of the oversight and all applicable rules are not known,” Societe Generale wrote to the agency in a letter dated August 8. “To that end, SG urges the commission to delay mandatory swap dealer registration,” the bank wrote.
The 2010 Dodd Frank financial reform law tasked the CFTC with drafting new rules to increase oversight and limit risk in the $650 trillion global over-the-counter swaps market.
The toughest rules will apply to the largest banks, which will be tagged as “swap dealers” if they have $8 billion or more in notional swaps transactions annually.
One of the most hotly debated pieces of the new regime is how broadly U.S. derivatives rules will reach into the overseas operations of U.S. and foreign banks.
Both the IIB and Societe Generale said they were pleased with the agency’s efforts to give clarity on the prickly issue of the reach of U.S. rules, but the IIB said the poor timing of the requirements could force banks to comply with rules from which they may eventually be exempt.
“Global firms will be left without sufficient time to consider (the rule) and may effectively be required to incur many of the registration and compliance costs for which (the rule) would otherwise provide relief,” the IIB said.
Risky derivatives trading at overseas subsidiaries of firms such as insurer American International Group (AIG.N) severely damaged the U.S. financial system during the 2007-2009 financial crisis and prompted some regulators to call for new, stringent regulations.
But the banking industry has said overly broad regulations from the CFTC might duplicate or conflict with rules of foreign regulators, or put certain banks at a competitive disadvantage.
In June, the CFTC voted on two proposals to lay out a tiered, phased approach to overseas swaps regulation.
One proposed measure gives guidance on which entities and transactions will be subject to U.S. “entity level” and “transaction level” rules.
“Entity level” rules include how much capital is needed to back a trade, while “transaction level” requirements detail the amount of collateral a firm must put up for its transactions.
A second measure would grant U.S. and foreign firms a delay in complying with certain “entity level” requirements such as business conduct standards.
Reporting By Alexandra Alper; Editing by Matt Driskill