Transatlantic Regulatory Convergence

The EU-US Coalition on Financial Regulation was established in 2005 with a Secretariat based at the FOA ( click here to see briefing note ). The specific intention of the participating associations was to encourage the regulatory authorities to accelerate the process of establishing a more open and coherently regulated transatlantic marketplace.

At the end of 2005, the Coalition produced its first major report “The Transatlantic Dialogue in Financial Services: The Case for Regulatory Simplification and Trading Efficiency” (Click here to see page -11th paper down) which set out industry priorities for regulatory action and included a regulatory analysis of key business conduct rules of the SEC, the CFTC and, on a pre-MiFID basis, the rules of France, Germany, Spain and the UK. A Swiss column was added at a later date.

Since the issuance of that report, the transatlantic regulatory dialogue has become significantly more important. Aside from a number of positive high-level policy statements from both sides of the Atlantic, the SEC has indicated its readiness to review its existing rule governing exemptive relief for non-US broker-dealers and to take forward initiatives to establish a framework of mutual regulatory recognition with the EU and other jurisdictions which are deemed to have acceptable regulatory standards. The need for urgent progress towards agreeing a framework for mutual regulatory recognition has been given in recent Joint Statements between the EU and the US and between Australia and the US, as well as in a number of pronouncements by the G7 and IOSCO.

In March 2008, the Coalition, working with a number of major institutions, published its second report “Mutual Recognition, Exemptive Relief and “targeted” Rules' Standardisation: The Basis for Regulatory Modernisation“ (Click here ). In summary, this report:

•  puts forward what has become known as the three “gateway” approach, for modernising the regulation of cross-border business, namely:

•  exemptive relief for wholesale business;

•  mutual regulatory recognition; and

•  “targeted” rules' convergence for the purposes of delivering economic, commercial and cost advantages or enhancing customer understanding or facilitating a more open transatlantic marketplace.

•  sets out the key criteria for establishing a durable basis for EU-US mutual regulatory recognition;

•  argues strongly for structured and regulatory industry input into the process; and

•  identifies priority areas for rules' convergence

•  emphasises that 2008 is a key year for substantial progress.

NB. There is one change that has been introduced into this pdf version post the issuance of the hard copy of the report, namely, the deletion of the reference to the letter of the US Department of Justice to the US Treasury, which urged the US Treasury to initiate a review of the market impact of clearing where it is provided under the control of an exchange. This reference was originally contained in Appendix 1 at Third Tier Issues (number 13) on page 19, but has since been deleted on the basis that the letter is no longer perceived to have the degree of influence that was originally attributed to it.