))One of the more contentious ares during the development of regulations under the Dodd Frank Act was the coordination of the developing global regulatory environments. There was a protracted discussion concerning the margin to be charged by clearinghouses between US and European regulators.
Chairman Giancarlo spoke yesterday at the Milkin Institute and discussed revision of the cross border regulations adopted by the US. He indicated in interest in altering the rules concerning non-US firms that provide services to US clients. Having been involved with discussions with firms that were looking at extending retail foreign exchange brokerage to the US, I can agree that the burden of complying with the Foreign Retail Foreign Exchange brokerage rules was a major consideration regarding the decision to invest in US expansion or to expand elsewhere. These changes would have impact. This approach is seen as being more deferential to local regulatory authorities.
On the other hand, the EU's rules under MIFID II and other regulations have taken the opposite approach. One area of contention is the proposed rules by the EU that would apply EU regulations to clearinghouses servicing customers and products based in the EU.
The CFTC Commissioners have disagreed with this proposal. Commissioner Quitenz spoke in June saying:
A troubling argument that I have heard recently attacking such a deference-based approach focuses on “regulatory arbitrage,” and postulates that market participants move to the jurisdictions with the least onerous regulation, thereby incentivizing jurisdictions to participate in a regulatory “race to the bottom” to win market share for their countries and economies. Let me be clear – I completely reject this disingenuous claim.
Market participants seek neither the least nor the most regulated marketplaces, but rather marketplaces that have the best balance of sensible, objective, and reliable regulation." (From speech released by the CFTC here )
This divergence between the US and EU has the potential to escalate into a regulatory battle. With the emergence of new markets in the APAC region and others, this could be a significant factor in future expansion decisions and trading firm locations. This is a development worth keeping an eye on.