The top U.S. derivatives regulator on Friday granted foreign banks more time to meet new rules for swap trading, saying it would continue to fine-tune the regulation that has drawn the wrath of foreign regulators.
The Commodity Futures Trading Commission (CFTC) said that foreign banks had until July 12, 2013, to comply with the rules once registered as swap dealers. They will need to start registering at the end of this year.
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"The relief period provides time for the Commission to work with foreign regulators as they implement comparable requirements," CFTC Chairman Gary Gensler - a former Goldman Sachs executive - said in a statement.
The CFTC had been facing a year-end deadline by which it needed to finalize or delay its international approach, after drawing flak from foreign regulators about the blunt way it imposed its rules on banks abroad.
Regulators in Europe and in Asia are saying they are already working on similar rules as the U.S. agency, and the potential doubling up of the rules has sparked fears foreign banks could stop trading with U.S. counterparties.
Countries across the world are writing rules for swaps for the first time to mend systemic flaws brought to light by the 2008 financial crisis, bringing trading onto regulated platforms and making more trading data public.
The CFTC said it would continue to seek comment on how to define a U.S. person - which includes companies - a hotly debated issue among lawyers because it determines how much leeway the foreign banks have to trade with U.S. banks.
Foreign banks must stick to the same rules as U.S. market parties if they want to do business with a "U.S. person" and if they exceed a threshold of $8 billion in swaps trading a year, according to proposed CFTC rules.
For now, the CFTC would continue to use a narrow definition that was largely similar to the one it used in an earlier temporary reprieve on Oct. 12, which gave the foreign banks more exemptions than in its original rule in July.
Republican Commissioner Jill Sommers disagreed with the agency's decision, the only dissenting vote among the CFTC's five top officials, three of whom are Democrats.
"Foreign entities will not have the basic information they need to make informed decisions regarding the ultimate obligations of engaging in swaps activities with U.S. persons (the definition of which continues to shift)," she said.
"There is no reason why the Commission could not have issued broader relief until these issues are settled. We have simply chosen not to," she said.
A group of U.S. Congress members across the political divide on Thursday urged the country's top derivatives regulator to decide quickly how its rules apply abroad. (Reporting by Douwe Miedema; Editing by Gerald E. McCormick and Alden Bentley)