U.S. Regulator Threatens EU Over Post-Brexit Clearinghouse Plan

(Bloomberg) -- The head of the Commodity Futures Trading Commission is threatening retaliation against financial firms based in European Union countries unless the bloc’s rule-makers drop a plan that would give them sweeping power to scrutinize U.S. derivatives clearinghouses.

Chairman J. Christopher Giancarlo says the CFTC has “blunt and strong tools” it could use in response if the EU goes ahead with a proposal for overseeing clearinghouses after the U.K. completes its separation from the group.

“The CFTC will not allow U.S. market participants to be put in the completely untenable position of having to choose between violating domestic laws and regulations or violating foreign laws and regulations,” Giancarlo said Wednesday at a Futures Industry Association conference in Chicago. “Be assured that the CFTC has a range of options.”

U.S.-based firms including Chicago-based CME Group Inc. have engaged in an aggressive lobbying campaign against the EU proposal and the added scrutiny it would bring.

Giancarlo said the CFTC could retaliate by revisiting policies that let foreign firms accept orders from U.S. customers on exchanges outside the country. He also said the agency could delay or withhold relief from CFTC rules that staff regularly approves for foreign firms.

The plan under consideration in Brussels is a response to Brexit, because once the U.K. leaves the EU, the bloc will relinquish oversight of London’s clearinghouses. After the 2008 financial crisis, regulators turned to clearinghouses to bring more transparency to the swaps market and ensure that there are funds to cover trading losses if a bank fails.

Last month, Giancarlo called for more deference to regulations governing swaps trading in other countries, and said the CFTC should respect rules adopted abroad as long as they are comparable. The agency maintains “exclusive” rights to make rules for its markets, he said at the time.

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