I support the Commission’s issuance of the proposed capital comparability order for comment (Proposed Order).[1]  The Proposed Order, if approved, will allow registered nonbank swap dealers (SDs) organized and domiciled in France and Germany to satisfy certain capital and financial reporting requirements under the Commodity Exchange Act (CEA) by being subject to and complying with comparable capital and financial reporting requirements under the European Union (EU) laws and regulations applicable in those countries.  I commend the staff of the Market Participants Division:  Amanda Olear, Tom Smith, Rafael Martinez, Liliya Bozhanova, Joo Hong, and Justin McPhee, as well as the members of the Office of International Affairs for their careful review of the capital and financial reporting requirements for SDs organized and domiciled in France and Germany.  This is the third proposed capital comparability determination approved for comment since the Commission adopted its substituted compliance framework for non-U.S. domiciled nonbank SDs in July 2020.[2]

As I previously noted in the context of another recent proposed capital comparability determination,[3] the Commission vigilantly monitors and surveils risk management activities by our market participants.  Capital requirements play a critical role in fostering the safety and soundness of financial markets.  Our efforts to coordinate and harmonize regulation with regulators around the world reinforce the adoption, implementation, and enforcement of sound prudential and capital requirements.  These requirements aim to ensure the integrity of entities operating in these markets, to ensure rapid identification and remediation of liquidity crises, and to mitigate the threat of systemic risks that may threaten the stability of domestic and global financial markets.

Section 4s(e) of the CEA directs the Commission to impose capital requirements on all SDs registered with the Commission.[4]  Section 4s(f) of the CEA directs the Commission to adopt rules imposing financial condition reporting obligations on all SDs.[5]  The Commission’s capital and financial reporting requirements adopted pursuant to these sections of the CEA are critical to ensuring the safety and soundness of our markets by addressing and managing risks that arise from a firm’s operation as an SD.[6]  Ensuring necessary levels of capital, as well as accurate and timely reporting about financial conditions, helps to protect swap dealers and the broader financial markets ecosystem from shocks, thereby ensuring solvency and resiliency.  This, in turn, protects the financial system as a whole, reducing the risk of contagion that could arise from uncleared swaps.  Financial reporting requirements work with the capital requirements by allowing the Commission to monitor and assess an SD’s financial condition, including compliance with minimum capital requirements.  The Commission uses the information it receives pursuant to these requirements to detect potential risks before they materialize.

I support acknowledging market participants’ compliance with the regulations of foreign jurisdictions when the requirements lead to an outcome that is comparable to the outcome of complying with the CFTC’s corresponding requirements.  Moreover, notwithstanding our issuance of the Proposed Order, the covered swap dealers domiciled in France and Germany would remain subject to the Commission’s examination and enforcement authority.  Capital adequacy and financial reporting are pillars of risk management oversight for any business, and, for firms operating in our markets, it is of the utmost importance that rules governing these risk management tools are effectively calibrated, continuously assessed, and fit for purpose.  The Commission’s efforts in considering the Proposed Order reflect careful and thoughtful evaluation of the comparability of relevant standards and an attempt to coordinate our efforts to bring transparency to the swaps market and reduce its risks to the public.  I look forward to reviewing the comments that the Commission will receive in response to the Proposed Order.

I commend the work of staff in the Market Participants Division and their careful consideration of this application.  I also want to thank my fellow Commissioners for their support in advancing this matter before the Commission.  Successfully implementing comparability determinations requires collaboration between the CFTC and its partner regulators in other countries.  The EU is one of our closest partners internationally, and increased collaboration can only be beneficial in achieving our key goals of customer protection and market integrity.