ASIC has today welcomed the US Commodity Futures Trading Commission’s (CFTC) 20 December 2013 announcement on substituted compliance.

The CFTC decided that major Australian banks can substitute compliance with CFTC’s rules by complying with the Australian regulatory regimes administered by ASIC and the Australian Prudential Regulation Authority (APRA). The decision followed an application by the Australian Bankers' Association on behalf of five Australian banks that are registered as swap dealers with the CFTC (ANZ, Commonwealth Bank, Macquarie Bank, National Australia Bank and Westpac).

ASIC Chairman Greg Medcraft said, ‘The decision recognises the strength of the Australian regime, and reflects the ongoing constructive engagement between the Australian regulators and foreign counterparts, at all levels of our organisations.

'We have been working closely with IOSCO and the OTC Derivatives Regulators Group to put in place principles to facilitate substituted compliance. The CFTC's decision is a major step towards that goal.

'We are pleased with the CFTC’s decision. The CFTC has recognised the strength of the Australian regulatory regime, and that the way we administer our regulatory regime achieves comprehensive and comparable regulatory outcomes consistent with the US Dodd-Frank Act.

'We expect the decision will reduce the compliance burden for Australian swap dealers and will result in cost savings. It means that, in a number of areas, the Australian banks will only need to comply with Australian regulatory requirements administered by ASIC and APRA, instead of similar US requirements under the Dodd-Frank Act.

‘This is a positive step in the regulation of OTC derivatives markets which are global markets and so very often involve cross-border transactions. We look forward to ongoing regulatory cooperation with the CFTC across a range of areas, including on OTC derivatives regulation’, Mr Medcraft said.

The CFTC has also granted time-limited no-action relief until 15 May 2014 to the Australian trading platform, Yieldbroker Pty Limited, which holds an Australian Market Licence (AML). ASIC expects to continue discussions with the CFTC and Yieldbroker on an arrangement under which Yieldbroker would maintain its AML while also registering with the CFTC as a Swap Execution Facility (SEF). In the meantime, Yieldbroker will be able to continue to provide services to US persons on its platform, ensuring Australian businesses are able to transact with a range of offshore counterparties to meet their hedging and funding needs.

Background

Under a substituted compliance determination, overseas entities registered with the CFTC as swap dealers and major participants may comply with certain requirements from their own jurisdictions, instead of complying with certain CFTC rules. On 20 December 2013 the CFTC made substituted compliance determinations for six jurisdictions: Australia, Canada, the EU, Hong Kong, Japan and Switzerland.