Regulators in the United States are writing rules to implement the Dodd-Frank legislation, including rules that will determine how broadly the law will apply to activity outside the United States. Japanese and other foreign financial institutions should take advantage of this opportunity to influence the regulations, because the consequences will be very important to them, and change will be much easier to accomplish now than it will be in the future.
Dodd-Frank creates a wide variety of new mandates for U.S. financial regulators. These include, among many others, enhanced prudential standards for systemic financial institutions, oversight of systemic risk, orderly liquidation of systemic firms, the Volcker Rule, comprehensive regulation of the swaps market and risk retention requirements for securitizers. Some of these may or will have extraterritorial application. To give just a few examples:
o Non-U.S. swaps dealers who transact with U.S. counterparties may need to register as swap dealers, and be subject to a wide range of regulatory requirements.
o Foreign banks with U.S. operations will need to implement worldwide compliance regimes to ensure compliance with the Volcker Rule, and will be restricted from engaging in many transactions that appear to be executed entirely outside the United States.
o Securitization of domestic assets in Japan and other countries may run afoul of the Volcker Rule, the 5% risk retention requirement and other Dodd-Frank requirements if even fairly limited connections to the United States are present.
o Bank groups with operations in the United States may be required to disclose to U.S. regulators extensive information about operations, assets and customers outside the United States as a part of the resolution planning requirements that will be applicable to U.S. operations.
U.S. regulators generally seek to implement the requirements of Dodd-Frank in a reasonable way. They are generally sympathetic to the perspective that
However, regulators face a number of challenges in this regard:
o They have an enormous amount of work to accomplish, with limited staff and a limited amount of time. As a consequence, regulators must engage in triage — addressing only the more important issues, and deferring or ignoring others.
o The issues are extraordinarily complex: many of the rules relate to products, markets and activities that regulators understand little, and for which adequate comprehension requires considerable data and expertise.
o Political pressures are intense: because the financial crisis and subsequent economic recession have severely affected a broad range of Americans, Congress is unusually proactive in the regulatory process. Regulators are receiving comment letters from legislators, and are frequently called to testify in Congress about the status of the regulatory implementation process.
o In a few cases, the regulators seem to feel that they do not have the statutory authority to create exemptions that appear to be appropriate. An example is the so-called push-out rule, which will require U.S. branches of foreign banks to cease all swaps dealing activity, even though U.S. banks will be able to continue a wide variety of such dealing — even though the sponsors of the legislation clearly indicated that this discrimination was not intentional.
It is necessary for interested foreign financial institutions to formulate an appropriate strategy for making their views known, in light of the foregoing considerations. The most effective strategy for a foreign financial institution seeking to influence the regulatory process involves the following steps:
o Closely study the legislation and proposed regulations to determine how they may potentially apply to your operations.
o Consult with others on the potential significance of these laws, including institutions in your industry, consultants and domestic regulators.
o Formulate — with as much precision as possible — specific proposals that address your concern. Regulators very much welcome this kind of comment in particular. It is best to formulate your specific proposal in a way that balances providing relief for you and continuing to address policy issues that are important to the regulators.
o Communicate your concerns to financial regulators in your country, who are likely already in dialogues with their U.S. counterparts. Give your regulators simple, clear, precise outlines they can use as talking points, together with supporting materials they can provide to U.S. regulators.
o Do the same with trade associations. Many of them actively engage in the U.S. regulatory process.
o Encourage other companies in your industry to become active. If there is no trade assocition group actively pursuing an issue of importance to your institution, consider forming an ad hoc group to do so with a few other firms that should share your concerns.
1月 24, 2012 20:38 | Posted by Paradise, Ted on the Davis Polk Tokyo Office Blog
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