Overseas branches of U.S. banks with less than 5% of the bank’s aggregate notional swap business may be excluded from having to comply with the Dodd-Frank Act’s collateral and clearing requirements, sources say.
The branches would be required to prove that risk from their trades would not be ported back to the U.S. entity, and would still have to comply with reporting requirements.
Industry groups have claimed that cross-border enforcement of Dodd-Frank would hurt U.S. firms’ ability to compete and drive trading overseas, but recent events such as JPMorgan’s $2 billion loss on trades executed by its London office have given regulators a strong counter-argument.
“During a default or crisis, risk of overseas branches and affiliates inevitably flows back into the United States,” CFTC Chairman Gary Gensler said during a June 14 speech at an Institute of International Bankers conference in New York.
Gensler also announced that the CFTC will give overseas-based swap dealers up to a year to comply with Dodd-Frank provisions governing capital and risk management requirements.
