By Lawrence Norton, United States Treasury Representative for Europe (Featured Image Source: Share America)
At least twice a year, U.S. and EU regulatory experts take part in the Joint U.S.-EU Financial Regulatory Forum (“Forum”). The Forum, which alternates between Washington and Brussels, is an important venue for transatlantic financial regulatory cooperation. The Forum was previously known as the U.S.-EU Financial Markets Regulatory Dialogue, and has existed since 2002. In July 2016, the dialogue was enhanced, renamed, and re-launched by Jacob J. Lew, Secretary of the Treasury, and Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union. The next Forum meeting will be held in Brussels in February 2017.
The Forum provides a valuable opportunity for the European Union and the United States to inform each other of regulatory issues of interest and concern. The Forum should be understood to represent the views of the European Commission, the U.S. Treasury and U.S. regulatory agency staff, incorporating input from a wide range of independent regulatory agencies. The Forum is a platform for enabling regulatory cooperation as early as practicable in our respective law-making and rule-making processes, with the general operational objective to improve transparency, reduce uncertainty, identify potential cross-border implementation issues, work towards avoiding regulatory arbitrage and towards compatibility, as appropriate, of each other’s standards, and, when relevant, promote domestic implementation consistent with international standards. This regulatory dialogue does not restrict the ability of either jurisdiction to implement regulatory or other legal measures that it considers appropriate. Bilateral contacts may continue, as appropriate, outside the Forum on any issue related to our ongoing regulatory cooperation.
At the last meeting of the Forum, in July 2016 in Washington, DC, participants discussed numerous issues, including banking, bank resolution, Central Counterparty (CCP) Resolution, Over-the-Counter (OTC) Derivatives, fund issues, insurance, audit, and data protection. Participants also highlighted their support for G-20 efforts to build a stronger and more resilient financial system, and their continued desire to work with other G-20 members to finalize the remaining core elements of the financial regulatory reform agenda. Given recent financial market volatility, both sides emphasized the importance of implementing the G-20 financial regulatory reforms.
On banking, U.S. and EU participants took stock of bank capital and liquidity issues, including legislative and rule making plans for the net stable funding ratio and the leverage ratio. Participants exchanged views on the upcoming steps in finalizing the international regulatory reform agenda in banking, and its potential impact on the overall capital and liquidity requirements across the banking sector.
Regarding bank resolution, participants noted the continued progress made to date on cross-border bank resolution and reaffirmed the deep cooperation between the European Commission, European Banking Authority, Systemic Risk Board, Federal Deposit Insurance Corporation, Federal Reserve, and Treasury on technical aspects of resolution. The relevant U.S. and EU participants provided an update on U.S. rulemaking and EU legislative proposals for their respective domestic implementation of the Financial Stability Board’s international minimum standard on total loss absorbing capacity (TLAC). They look forward to more in-depth discussions on potential cross-border implementation approaches.
On CCP resolution, participants exchanged views to understand the respective U.S. and EU approaches and to identify potential cross-border considerations. Discussions covered various issues, including those under consideration in international workstreams.
Regarding OTC derivatives, EU and CFTC participants addressed the importance of engaging in discussions regarding the equivalence of U.S. swaps trading platforms under the EU’s Markets in Financial Instruments framework. In response to concerns expressed by CFTC, Federal Reserve, FDIC, and U.S. Treasury participants over the delay in the EU to issue implementing rules requiring margin for uncleared derivatives beyond the international deadline of September 1, 2016, the EU participants indicated that the relevant technical standards would be issued as soon as possible. In late 2016, these rules were issued and approved by the Council and the EP and will enter in to effect on February 4, 2017 for the largest counterparties, and on March 1, 2017 for all other counterparties.
On Fund issues, ESMA reported that it is issuing its advice to the European Commission regarding the extension of the EU Alternative Investment Fund Managers Directive (AIFMD) passport to U.S. fund managers. Participants noted recent useful exchanges to help clarify the effect of the Volcker Rule on foreign private funds. Participants committed to continue discussions to review outstanding concerns, with a view to finding solutions as soon as possible.
As for insurance, the European Commission and Treasury welcomed the continuation of negotiations for a covered agreement on prudential insurance and re-insurance matters between the United States and the EU. Both sides expressed support for completing negotiations in a timely manner.
On audit, the PCAOB and European Commission participants acknowledged the progress being made on transatlantic cooperation in audit oversight that has already produced an arrangement on joint inspections and a commitment to avoid unnecessary duplication of work. The participants also welcomed the European Commission’s renewal of the Adequacy Decision for a longer term, thus bringing greater stability to this cooperation.
Regarding data protection, following up on constructive discussions in previous months, participants expressed support for continuing data transfers between Europe and the United States for regulatory, supervisory and enforcement purposes in the context of a changing data protection landscape. Authorities’ need for timely and complete access to information is critical, among other things, for regulatory oversight and for the effective investigation and prosecution of misconduct. Both sides acknowledged the importance of continuing these discussions.