By Douwe Miedema
WASHINGTON, Dec 20 (Reuters) - The United States granted foreign banks a reprieve from some of its new rules for risky derivatives, putting itself on a collision course with overseas regulators who want more reliance on home-country rules.
The U.S. swaps regulator laid out which of its new rules foreign banks have to comply with if they trade with American clients, or even if they deal with customers in their own country from an office in the United States.
The Commodity Futures Trading Commission granted exemptions in the area of how banks manage risk, but banks will largely need to comply with the cross-border rules for data reporting, swaps trading, and for clearing trades.
That is bound to disappoint foreign regulators, who had asked for more so-called substituted compliance, a legal concept that allows U.S. regulators to rely on foreign regulators for non-U.S. companies.
The CFTC did say however, that it could still make changes in the future, if it were asked to do so.
"To the extent that a jurisdiction wishes to knock on the door of this Commission ... (it) stands ready to consider those submissions," CFTC Chairman Gary Gensler said on a conference call with journalists.
The lucrative swaps market, which was long unregulated, has $630 trillion worth of contracts outstanding and is dominated by Wall Street banks such as Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co.
Politicians across the world agreed to clamp down on Wall Street after the 2007 to 2009 credit meltdown, but different countries have since worked on rules that are not always identical, and that have different time frames.
Under the chairmanship of Gensler, who himself oversaw swaps trading at Goldman Sachs earlier in his career, the CFTC has aggressively implemented these new rules, sometimes putting it years ahead of other jurisdictions.
It had temporarily lifted many of its rules, but they kick back in on Saturday, and the decision determines in which cases foreign banks can rely on comparable rules at home.
The three Democrat members of the CFTC voted in favour of the determination - which is valid for Europe, Australia, Canada, Hong Kong, Japan and Switzerland - while the only Republican, Scott O'Malia, dissented.
PATH FORWARD?
Wall Street groups sued the CFTC this month, hoping to beat back the cross-border guidelines that they fear may hurt markets and cut profits.
Europe and regulators elsewhere have also frequently complained about the lack of cooperation, writing several letters to U.S. authorities and testifying in U.S. Congress and during hearings at the CFTC.