The Futures Industry Association (FIA) has released a policy paper outlining seven principles to guide the regulation of cross-border activities in the derivatives markets.
The paper addresses the threat of market fragmentation due to conflicts, inconsistencies, and duplication in cross-border regulation. It observes that policymakers and regulators in many parts of the world are re-examining their approaches to cross-border activity – with some favouring more insulated national policies that result in the direct oversight of domestic and foreign entities.
These national approaches do not defer to home country regulation and would lead to the overlap of regulation on cross-border activity that results in less efficient markets and higher costs for end-users.
In the paper, the FIA identifies several developments for policymakers and regulators to consider increased regulation of entities domiciled in or operating from foreign jurisdictions, including:
- The separation of London’s financial centre from the European Union due to Brexit
- New concerns about the supervision of OTC markets and clearinghouses
- China’s increasing integration in global financial markets
- Calls to develop new regulatory structures for digital assets
The FIA believes that regulators should include reliance on comparable home country regulation as a core element of their regulatory response – a tried-and tested model which has been applied to futures trading and clearing for generations and presents a safe and efficient way to regulate entities and markets that operate at a global level.
To encourage greater use of this model, the FIA has released seven principles to clarify how this model can be applied. These principles are:
- Determination of necessity
- Define outcomes
- Use of international standards as benchmarks
- Assess outcomes rather than rules
- Communicate with counterparts
- Adoption of measures
- Create mechanisms for ongoing cooperation