SPEECHES & TESTIMONY

Remarks by Chairman J. Christopher Giancarlo at the Eurofi Financial Forum, Vienna, Austria

September 6, 2018

Good evening.  It is my great pleasure to be here again at Eurofi.  I wish to thank David Wright, Didier Cahan and Marc Truchet for organizing once again a great conference.  Thanks also to our Austrian colleagues for their gracious hospitality.

I am most pleased to be with you and address the leaders of the European financial regulatory community.

It is also my immense pleasure to be here in Vienna.  This is a city that has been described as more than a city; Vienna is “a way of life.”  Here that way of life produced Carl Menger, Friedrich von Wieser, the great Friedrich von Hayek, and Ludwig von Mises.  It was they who made clear that human rights and advancement are inseparable from economic liberty and free enterprise.

Vienna has been described as having a “supranational, cosmopolitan consciousness.”  When someone speaks in Vienna, they address the world.  This is certainly true here this evening.

Since becoming CFTC Chairman, I have made it my highest priority to build strong bonds with my counterparts in Europe and other parts of the world.  Effective cross border relations are central to the mission of the CFTC because of the global nature of the futures and derivatives markets which the CFTC regulates.  I have striven to interact with my foreign counterparts with respect, humility and goodwill.  We policymakers and regulators have a shared interest and responsibility to ensure our markets are vibrant, efficient and value-enhancing.  Our common interest and mission mean we should be working together and not apart.

A year ago, at Eurofi in Tallinn and in a contemporaneous article in Les Echos of Paris, I expressed my view that regulatory and supervisory deference is the best way to ensure harmony between regulatory regimes.  I depicted a vision for CFTC-EU regulatory coordination that would focus on ensuring consistently high-quality regulatory outcomes across our respective markets while respecting the differences in laws and regulations that are necessary to support the unique characteristics of our local markets.

While I believe that my call for deference was not a radical idea, but just common sense, I have felt my message has not fully achieved the positive effect intended.  While I am proud of undeniable concrete achievements – most notably the accomplishment with Vice President Dombrovskis last fall of equivalence for US trading venues and exemptions for EU trading venues – I remain concerned with proposals and pronouncements here in the EU about financial regulation and supervision of third country firms that seem to reject deference as the governing principle for cross-border regulation.

We are all aware of the history of cross-border regulation between the CFTC and EU.  Many here in Europe understandably criticized past CFTC actions for over-extending CFTC rules to European markets and firms.  They were right to expect greater regulatory deference from a fellow framing nation of the 2009 G-20 Pittsburgh Accords.

But I fear that history has now made us too cynical.  We have forgotten how to reach for what is possible in favor of acting to protect what we have today.  We have created hooks and raised barriers when we should be seeking openness and encouraging competition.

Earlier this week in Europe, I presented new views on how best to apply swaps reform regulation to firms and transactions across borders.  I announced that I will publish shortly a comprehensive and detailed white paper analyzing the shortcomings of the CFTC’s current approach and recommending improvements that better allow cross-border derivatives markets to thrive while meeting the goals of the G20.  I gave several concrete examples that foreshadow the extensiveness and level of detail of my recommendations.  My white paper will not be about theory, but hard reality.

This white paper will serve as a roadmap for a series of rulemakings that I intend to put forward to the full CFTC Commission in the future and, with their input, thereafter for public notice and comment and eventually adoption.

Most importantly, I am giving substance to what I mean by deference.  Deference is not just a slogan.  It is a regulatory approach that can be applied to concrete regulatory challenges –regulation of swaps trading venues, regulation of central clearinghouses, and regulation of swap dealers.  These ideas are specific and clear in showing how regulatory and supervisory deference can be applied to the regulation of the cross-border markets.  As CFTC Chairman, I look forward to taking steps put these ideas into effect.

Addressing the world from this great city of Vienna, I call on you – the policymakers and regulators of Europe – to join me in adopting a similar approach to the cross-border application of swaps reform regulation.  We have a rare and precious opportunity to trust one another; to put into place contemporaneously laws, rules and regulations that enshrine regulatory and supervisory deference in how we treat third country firms and transactions.

Regulatory deference has been the common practice of the European Union.  The EU pioneered the use of equivalence and recognition to make it possible for outside firms to serve European markets.  On such a basis, the EU and the CFTC showed how well we can work together in applying a joint framework of equivalence and substituted compliance and exemptions.  We did it in 2016 when we reached agreement on the regulation and supervision of CCPs, and we did so again in 2017 when we reached agreement on the regulation of trading venues and uncleared margin requirements.

Now is the time to expand the use of equivalence and recognition.  The EU should commit to an equivalence determinations process that focuses on achieving comparable regulatory outcomes and not rule-by-rule exactitude.  Thus, EU can provide necessary legal and regulatory certainty to third country firms.  And the EU should rely as much as possible on third country regulators and supervisors.  I want the CFTC to do the same.

But here I must express some concern.

Current EU legislative proposals on CCP supervision are going in a different direction.  These proposals, when understood alongside comments from some European officials, raise doubt about continuance of the policy of deference.

I fully respect the EU policymaking process and the goal of enhancing EU regulatory capabilities.  I have even greater professional and personal respect for EU public officials.

Thus, it concerns me that decisions may be made in the next few months that will end up having a deleterious effect on transatlantic financial trade.

I come here today to put forward to you – European policymakers and regulators – a plain choice.  I will embark the CFTC on the course of greater regulatory deference, including concrete proposals to further open up the CFTC regulatory regime to European firms and markets.  My proposal seeks to recognize the power and authority of EU authorities to regulate and supervise the European market with limited involvement from the CFTC.  It welcomes an EU approach that will do the same to US firms and markets.  This is one approach.

The other approach is to reject what I put forward and to continue down the path of expanding direct European regulation and supervision over third country firms.

The choice of approach is yours to make.  I sincerely hope that we all recognize the unique opportunity before us to achieve true regulatory coordination between the US and Europe.  It is time to seize that opportunity by putting in place the relevant laws, standards and policies to reciprocate our path of deference with a European recommitment to that most beneficial approach.

Or reject this approach and turn down that very different path of overlapping and confounding cross border regulation with its high regulatory cost and constraints on economic growth.  This would be the legacy of policymakers making such a choice. 

To be clear, the course I set for the CFTC will be robustly debated in the United States.  The prospect of my course being fully implemented will be greatly enhanced if the European Union, as well as our other non-U.S. counterparts, pursue a common approach and harmed if they do not.  I look to you to make the right choice and to express your choice with clear statements and clear legislative and regulatory actions.

I started by mentioning the great influence Vienna has on the world of economics.  Friedrich Hayek argued that free market economics is the foundation of the highest form of human freedom.  And, ultimately, that is what I am urging with these recommendations: the freedom of private enterprise that fires the imagination, liberates trade and commerce, unleashes markets lifts our fellow citizens into greater prosperity. 

Vienna also has been called “the city of dreams.”  Let’s realize the dreams of cross border regulatory coordination and make it a reality.

Here at Eurofi this week, working together, we can implement a vision of regulation that will take us well into the 21st Century.

Thank you.