Dodd-Frank News Center

European Central Bank Asks CFTC to Exclude Swap Activities of Foreign Central Banks from Dodd-Frank Embrace

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and Author of Jim Hamilton's World of Securities Regulation.

In a letter to the CFTC, the European Central Bank said that the objectives of the derivatives provisions of the Dodd-Frank Act of increasing transparency and reducing risk will not be served by applying Title VII of the Act to the swap activities of the ECB or transactions with its counterparties. In fact, said the central bank, regulations constraining the ECB’s activities in the US or with US parties will have the perverse consequence of making it more difficult for the ECB to reduce risk and maintain the integrity of the financial system. Indeed, imposing transparency requirements on the ECB will not achieve greater transparency for the swap market, said the central bank, because the ECB’s trades are not ordinary commercial trades that are comparable with other transactions. If Title VII-implementing regulatory requirements are imposed on foreign central banks, said the ECB, the ECB and other central banks may shift swap activity away from the US markets or US counterparties, thereby reducing the liquidity of US markets, constraining the competitiveness of US parties, and reducing the effectiveness of central bank actions.

European Commission Declares US and Nine Other non-EU Countries Equivalent for Inspections of

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and CCH Derivatives Regulation Law Reporter.

The European Commission paved the way for the PCAOB and other non-EU audit overseers and EU audit oversight bodies to mutually rely on each others’ inspections of audit firms by recognizing the equivalence of audit oversight regimes in the US and nine other countries. However, the grant of equivalence to the US was limited to three years, at which time it will be reviewed. In addition to that of the US, the audit oversight systems of Australia, Canada, China, Croatia, Japan, Singapore, South Africa, South Korea, and Switzerland were deemed equivalent.

Geithner and EU Commissioner Reaffirm Strengthening the Global Financial System

This story appeared in Bank Digest.

Treasury Secretary Tim Geithner and European Commissioner Michel Barnier met on Oct. 29, 2010, and reaffirmed their strong determination to continue cooperating closely in strengthening the global financial system and in promoting and putting in place the G-20 financial reform agenda. They reviewed the progress in implementing the G-20 financial regulatory commitments. In particular, they noted the significant achievements reached on both sides of the Atlantic—in the United States with the enactment of a vast set of financial reforms in the Dodd-Frank wall Street Reform and Consumer Protection Act and in Europe with the approval of several legislative measures and an extensive on-going legislative agenda. Geithner and Barnier also reaffirmed their commitment to continue their strong and close bilateral cooperation on regulatory reform in the over-the-counter derivatives markets.

European Parliament Approves Legislation Creating New EU-Wide Financial Regulatory Regime

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The European Parliament has approved legislation creating a European financial regulatory framework with separate regulators for securities, banking and insurance, as well as a European Systemic Risk Board similar to the Financial Stability Oversight Council created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new regulatory framework should be fully operational by January 1, 2011. Praising the new regulatory regime, EU Commissioner for the Internal Market Michel Barnier said that the new regime will give the EU monitoring tools to detect risk which is accumulating across the financial system and provide effective tools to act. The new framework gives the EU the ``control tower and the radar screens’’ needed to identify risks, he said, and the tools to better control financial players, as well as the means to act quickly in a coordinated and timely fashion.

European Commission Proposes Derivatives Legislation Broadly Consistent with Dodd-Frank Act

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The European Commission has proposed derivatives legislation that is broadly consistent with Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The draft would require that detailed information on OTC derivative contracts entered into by EU financial and non-financial firms be reported to trade repositories and made accessible to regulators and that trade repositories publish aggregate positions by class of derivatives accessible to all market participants. In addition, the proposal introduces stringent rules on prudential organization and conduct of business standards for central counterparties (CCPs), mandatory CCP-clearing for standardized contracts, and risk mitigation standards for contracts not cleared by a CCP. The proposed legislation must now be considered by the Council and the European Parliament.

European Commission Gives Green Light to Exchange of Audit Working Papers with PCAOB

This story appeared in Jim Hamilton's World of Securities Regulation.

The European Commission has formally recognized the adequacy of the auditor oversight of the PCAOB to fulfill the requirements of the EU’s Audit Directive and, particularly, the Board’s capacity to enter into reciprocal working arrangements with EU states on the exchange of audit working papers and other relevant documents. The Commission’s decision also covers the preservation of the confidentiality of audit working papers that the PCAOB may receive from EU authorities. These reciprocal arrangements will, in the Commission’s view, reinforce international audit oversight cooperation and increase investor protection. The documents covered by the Commission’s decision are those defined under Article 47 of the Statutory Audit Directive (2006/43/EC), which are audit working papers or other documents held by auditors or audit firms relating to the audits of companies which have issued securities in the US or which form part of a group issuing statutory consolidated accounts in the US. The SEC was included in the Commission’s decision because the PCAOB falls under the oversight of the SEC.

EU Reaches Deal on New Supervisory Authorities for Securities and Banking and Systemic Risk Board as part of New Regulatory Regime

This story appeared in Jim Hamilton's World of Securities Regulation.

European authorities have reached a consensus on legislation creating a European financial regulatory framework with separate regulators for securities, banking and insurance, as well as a European Systemic Risk Board similar to the Financial Stability Oversight Council created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final legislation is expected to receive European Parliament approval by the end of September and the regulatory framework should be fully operational by January 1, 2011. Praising the new regulatory regime, EU Commissioner for the Internal Market Michel Barnier said that the new regime will give the EU monitoring tools to detect risk which is accumulating across the financial system and provide effective tools to act. The new framework gives the EU the ``control tower and the radar screens’’ needed to identify risks, he said, and the tools to better control financial players, as well as the means to act quickly in a coordinated and timely fashion.

Key Senator Scores Protectionist EU Proposed Hedge Fund Directive

This story appeared in Jim Hamilton's World of Securities Regulation.

Joining the growing outcry over protectionist tendencies in the proposed EU Directive regulating hedge funds, Senator Charles Schumer, a key member of the Banking Committee, expressed deep concern that the Directive would overtly discriminate against US hedge funds. In a letter to Treasury Secretary Tim Geithner, he said that the multiple proposals under consideration would all have the effect of significantly limiting or even prohibiting non-EU investment funds from marketing in the EU, despite the fact that EU-based funds have full access to US markets.

US Treasury Concerned about Protectionism of Proposed EU Hedge Fund Directive

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Recently, Dan Waters, Director of Asset Management at the Financial Services Authority, said that the revised proposed Alternative Investment Fund Managers Directive would restrict the access of EU institutional investors to valid investment opportunities in US hedge funds while delivering little real benefit to European market stability or investor protection. In remarks at the recent Euromoney seminar, he said that the current draft can be seen as an attempt to protect European funds from competition from legitimate US and other third-country funds.

Hedge Fund Industry Supports EU OTC Derivatives Legislation; Wants CCP Global Competition

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The hedge fund industry generally supports the broad concepts for derivatives legislation set forth by the European Commission as the EU commits to the passage of legislation this year. In a letter to the UK House of Lords, which is collecting comments to form a broad consensus on the legislation, the Managed Funds Association opposed position limits and expressed concern about the international harmonization of OTC derivatives legislation.