FCA chief executive Martin Wheatley (pictured) also said in a recent speech to the International Swaps and Derivatives Association (ISDA) conference in London that small firms’ compliance with EMIR was “a major concern” and that bigger firms should “play their part” to help smaller laggards.
Wheatley said there is “a pretty fundamental question of how financial regulators exert influence across international markets. Central to this debate is whether regulators operate independently on global issues so they can intervene quickly in the national interest. Or whether they find international solutions to international challenges.”
The former option, he said, was “eye-catching from the enforcement perspective” because “the big global economies are unwilling to stand back and allow the derivatives market to stockpile risk in one corner of the world, only to see it transmitted back to their own consumers.”
However, Wheatley added: “What I don’t think is clear yet, or well enough understood, is how the application of domestic rules in regulated international markets makes this stress scenario any less likely.”
"An unworkable mess"
He said that a “patchwork quilt” of national and regional rules runs the risk of becoming “unworkable – a mess – creating space for overlaps and under-laps in regulation, with all the question marks that brings with it: opportunities for regulatory arbitrage; less protection for end-users and lower margins for firms that operate by the book.
“There’s also the linked danger that if every national regulator follows suit, you soon create a tit-for-tat environment where any one transaction, or participant, could easily be subject to three, four or five different regulatory regimes.”
Wheatley noted that ISDA has made “a pretty convincing argument in favour of domestic regulators accepting compliance with foreign rules for cross-border trades – always assuming those rules yield an equivalent outcome. On the face of it, I think this makes good sense. Otherwise you have to be able to demonstrate the value of insisting [that] trades conform to your own laws, when they’re already doing so through someone else’s.”
On EMIR implementation, Wheatley said that, from a compliance standpoint, “the general state-of-play is actually very positive… the FCA team is happy with what they’re seeing from the larger players. Most firms are putting in a lot of effort to get ready for EMIR.”
A “major concern”, however, is, he said, “the tail of smaller firms who are finding implementation a bigger headache. Given the complexity of the changes involved, I don’t think this is unexpected, but it is a significant concern.”
He added that, in coming months, the FCA will be “working hard to support smaller firms”. He called upon bigger operators to “play their part” by reaching out to client bases and help them get ready for implementation.
Martin Wheatley’s prepared text is available from the FCA website by clicking here.