“Substituted Compliance” Should Regulate Cross-Border Swaps, Says SEC Chairman Elisse Walter

According to Securities and Exchange Commission Chairman Elisse Walter, the best way to regulate global over-the-counter derivatives regulation is via “substituted compliance.” Such an approach would let a market participant comply with domestic requirements in a certain area through compliance with comparable foreign regulation while also allowing the domestic regulator to keep applying specific policy requirements of local law when the foreign one fails to impose requirements or protections that compare.

Per its Dodd-Frank Wall Street Reform and Consumer Protection Act Title VII mandate, the SEC intends to put forth a proposal on how to tackle cross-boarder issues. Although the Commission hasn’t figure out how it will go forward with this proposal, Walter stressed that “substituted compliance” could act as a “a reasonable and necessary middle ground” between making foreign participants abide by domestic regulation and widely recognizing foreign swap regimes. She believes that while efforting to give the maximum substituted compliance possible, properly tailored cross-border regulation would take care of the potentially significant regulatory gaps that are likely to exist between jurisdictions.

Walter believes that regulators need to be participating in the world debate on how to cut down systemic risk. Also, noting that brokerage firms, investment advisers, and other market participants that the SEC oversees differs from traditional banking institutes, Walter cautioned that failure to identify these key differences ups the risk that there will be weaker financial institutions and less options for businesses looking for investment capital.

If you are an institutional investor who has been the victim of securities fraud, please contact Shepherd Smith Edwards and Kantas, LTD LLP right away. We would be happy to provide you with a complimentary, no obligation case evaluation.

Read Chairman Elisse Walter’s Speech for the ASIC Forum, SEC, March 24, 2013

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