Public Statements & Remarks

Opening Statement of Commissioner Caroline D. Pham Regarding Proposed Governance Requirements for Derivatives Clearing Organizations and Swap Dealer Capital Comparability Determination for Japan

July 27, 2022

I want to begin by saying what a true honor and privilege it is to be here, and to express my gratitude for the opportunity to work and serve with my fellow commissioners and that I am looking forward to our future together.

I also want to thank my team, my Chief of Staff, Meghan Tente, my Senior Counsel, Gates Hurand, and my Senior Policy Advisor, Keaghan Ames. Most of all, I want to thank the dedicated staff of the Commission.  They have indeed faithfully executed our mission and the enormous responsibility that we have taken on under our expanded authorities granted by the Dodd-Frank Act.

One of the things that I want to note is the progress that the world has made since the 2008 financial crisis in implementing the G20 global derivatives reforms.  For example, the Financial Stability Board's (FSB) OTC Derivatives Market Reforms: Implementation Progress in 2021 stated that the overall implementation of the OTC derivatives reforms were “well advanced” and described the incremental progress that has been made since October 2020 across FSB member jurisdictions.[1]

Specifically, there has been significant progress in implementing final higher capital requirements for uncleared derivatives in 15 out of 24 FSB member jurisdictions.[2]  For margin requirements for uncleared derivatives, that's in force in 16 jurisdictions with the expectation that all jurisdictions will have implemented by the compliance date of September 1, 2022.[3]  Trade reporting requirements for OTC derivatives transactions are in force in 23 FSB member jurisdictions and central clearing requirements are in force in 17 FSB member jurisdictions.[4]  I think we can say that truly the world has come together to find a global solution to the global challenge of the 2008 financial crisis, and that there are now well developed regulatory frameworks in place in our fellow FSB member jurisdictions around the world.

Another point that I wanted to raise is that with the implementation of Dodd-Frank, we have had some challenges with getting the rules right. We have used various tools that we have at our disposal to try to ensure that we can adjust and fix the rules as necessary.  To that effect, there are nine no-action letters that expire in the next year.[5] I encourage the Commission to come up with a plan to provide regulatory certainty well in advance of the expiration dates.  I believe that we should hold ourselves accountable to the same standards that we ask of our registrants, who have to plan ahead to ensure compliance with our rules.

Next, just a couple of comments on today’s proposals. Regarding the proposed capital adequacy and financial reporting comparability determination for non-bank swap dealers located in Japan, I would like to note first of all that the staff of the Market Participants Division, formerly the Division of Swap Dealer and Intermediary Oversight, has been working very hard on these proposals.  Their diligence in implementing a comprehensive oversight regime for swap dealers has helped make the U.S. financial system safer.  Both global and U.S. markets work best when there are clear and simple rules with common standards. Ensuring that these rules are harmonized minimizes operational complexity that can otherwise increase risks and costs.

As Commissioner, I take this responsibility to encourage international regulatory harmonization seriously.  Significantly, the proposed conditional capital adequacy and financial reporting comparability determination order for Japan is the first of its kind for the Commission.  These determinations will set the stage for the capital adequacy and financial reporting determinations to follow for the UK, EU, and Mexico.  Therefore, we need to carefully ensure that these determinations are a model for those that come next and I look forward to good work being done through the notice-and-comment rulemaking process.  With that in mind, I would like to also mention that it's important that we uphold principles of deference to home country regulators and promote international regulatory harmonization to minimize market fragmentation.

As others have noted, an approach that favors direct oversight of both U.S. and foreign entities often does not recognize that another regulator is already overseeing the activity at issue in a comparable manner.  As I previously mentioned, we do have comprehensive derivatives reforms in place in FSB member jurisdictions.  Without an approach that favors deference through reliance on the home country regulator, trading and clearing becomes more complex and therefore costlier and less efficient for all market participants.  Accordingly, one of the things that I will be focused on is to ensure that these proposals properly balance avoiding the weakening of the Commission's oversight abilities, but also not unduly constraining cross-border activity. In doing so, I invite commenters to touch upon any of these aspects.

Finally, I'm pleased that we will consider a proposal to enhance clearinghouse risk governance.  I note that this proposal follows on to the good work and policy recommendations from the Market Risk Advisory Committee.  Engaging with the public through roundtables in a transparent manner is the type of good process that results in good outcomes.  We should consider other advisory committee recommendations as appropriate, and I thank the Chairman for his leadership of and sponsorship of the Market Risk Advisory Committee.

 

[1] Financial Stability Board OTC Derivatives Market Reforms – Implementation Progress in 2021.” (Dec. 3, 2021).

[2] Id.

[3] Id.

[4] Id.

[5] See CFTC Letter No. 19-19 (July 31, 2019), available at: https://www.cftc.gov/node/218656 ; CFTC Letter No. 20-28 (Aug. 15, 2020), available at: https://www.cftc.gov/node/233216 ; CFTC Letter No. 21-20 (Sep. 30, 2021), available at: https://www.cftc.gov/csl/21-20/download; CFTC Letter No. 20-31 (Oct. 9, 2020), available at: https://www.cftc.gov/csl/20-31/download; CFTC Letter No. 20-37 (Nov. 18, 2020), available at: https://www.cftc.gov/node/234816 ; CFTC Letter No. 22-05 (May 25, 2022), available at: https://www.cftc.gov/csl/22-05/download; CFTC Letter No. 21-24 (Nov. 17, 2021), available at: https://www.cftc.gov/csl/21-24/download; CFTC Letter No. 21-31 (Dec. 22, 2021) available at: https://www.cftc.gov/PressRoom/PressReleases/8474-21 ; CFTC Letter No. 20-30 (Sep. 25, 2020) available at: https://www.cftc.gov/csl/20-30/download

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