July 30, 2013


WASHINGTON – U.S. Senator Mike Crapo (R-Idaho), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, today delivered the following remarks during a Banking Committee hearing entitled “Mitigating Systemic Risk in Financial Markets through Wall Street Reforms”:
"Thank you, Mr. Chairman.
"Today, we will hear from Securities and Exchange Commission SEC Chair White and U.S. Commodities Futures Trading Commission CFTC Chairman Gensler on their implementation of financial reform, including Dodd-Frank and the JOBS Act.
"Having just passed Dodd-Frank’s third anniversary, there is still considerable work to be done.
"Among other things, this hearing provides an opportunity to learn more about the steps they are taking to fix the lack of coordination and harmonization of rules among the U.S. and international regulators for the cross-border derivatives market.
"The unique role that the securities, futures, and swaps markets each play has informed the manner in which the SEC and CFTC regulatory regimes have developed since the 1930s.
"Notwithstanding these differences, it is critical that the SEC and CFTC harmonize their regulatory approaches where sensible, both domestically and abroad. 
"True harmonization is not only getting on the same page, but it is working together to get on the right page. 
"The U.S. markets are the most liquid in the world and must remain so.
"Market participants must not be discouraged from entering a market that will allow them to allocate their risks, hedge their investments and grow their business.
"The cumulative regulatory burdens that will flow from a regime that is not truly harmonized will work against the free flow of capital in the U.S. and abroad. 
"The CFTC has issued an array of interpretive guidance, exemptive orders and no-action letters on cross-border issues. 
"The CFTC’s initial proposal for the cross-border implementation of Title VII received criticism from domestic and foreign market participants and regulators as being confusing, overly expansive, and harmful. 
"The final cross-border interpretive guidance, announced by the CFTC on July 12, continues to raise questions, both as to its substance and the process surrounding its issuance.
"In the hours leading up to the CFTC’s final guidance, the CFTC and European regulators issued a joint statement regarding how international coordination of rulemaking should proceed. 
"This “Path Forward” has been characterized as an agreement, when it appears to be a statement of future collaboration.
"While this development may prove to be constructive, a number of questions remain.
"For example, how will conflicts in rules for central clearinghouses, which will handle the large majority of trades and collateral posted by swap dealers, be addressed across borders? 
"We also need information as to what agreement has been reached, if any, regarding treatment of margin for end-users.
"Timelines for implementation remain very much in flux, and the Path Forward does not make mention of Canada or various Asian jurisdictions where swap dealing takes place and where regulatory reform is progressing.   
"I look forward to hearing Chairman Gensler’s testimony on what exactly was agreed upon with respect to these and other issues.
"With these questions unanswered, it is clear there is a lot of work to be done on international harmonization. 
"The SEC proposed its own cross-border rule on May 1.  In light of the far-reaching significance of this rule, the SEC also reopened comment periods for many of its previously proposed security-based swap regulations. 
"The public is now faced with two marginally similar regulatory plans from two agencies, issued through two very different processes.  The CFTC, through interpretative guidance and exemptions.  The SEC, through notice and comment rulemaking. 
"For example, both cross-border schemes contemplate “substituted compliance,” which is intended to provide foreign market participants the chance to continue to abide by their own country’s requirements if those requirements are deemed “comparable” to U.S. requirements.
"The willingness of each agency to grant substituted compliance for foreign jurisdictions is questionable.  The details matter. 
"I look forward to hearing the views of Chair White and Chairman Gensler on these issues of truly international significance.
"Our capital markets are the preferred destination in the world and cannot be tarnished by virtue of two regulators that appear to be going in different directions and not working effectively with each other and their international counterparts.  
"If the current lack of coordination persists, it would not be surprising to hear additional calls for merging the two agencies into single regulator for the securities, futures, and swaps markets.
"Thank you, Mr. Chairman."