2013: Schweikert Voted To Defer To Foreign Governments The Regulation Of Swap Transactions Between That Government's Citizens And U.S. Financial Companies. In June 2013, Schweikert voted for a bill that would, according to Congressional Quarterly, required the relevant regulators "to adopt a joint rule on the regulation of swaps transactions between U.S. citizens and foreign entities," which would "exempt leading nations from complying with U.S. swaps requirements, although swaps would still need to meet those nations' own regulations." The relevant regulatory agencies are the Securities and Exchange Commission and the Commodity Futures Trading Commission. The bill passed the House by a vote of 301 to 124. The Senate took no substantive action. [House Vote 218, 6/12/13; Congressional Quarterly, 5/7/13; H.R. 1256, 6/13/13; Congressional Actions, H.R. 1256]
Exemption Would Apply To Transactions In Nine Largest Swap Markets, Plus Any Others Included By Regulators. According to the report on the legislation by the House Financial Services Committee, "The bill exempts from U.S. swaps requirements a non-U.S. person that is in compliance with the swaps regulatory requirements of a country or administrative region that has one of the nine largest combined swap and security-based swap markets by notional amount in the calendar year preceding issuance of such rules, or other foreign jurisdiction as jointly determined by the Commissions." [House Report 113-103, Part 1, 6/10/13]
Financial Services Committee: Bill Would Allow Regulators To Apply U.S. Rules To Exempted Market If They Determine Foreign Rules Not "Broadly Equivalent" To U.S. Requirements. According to the to the report on the legislation by the House Financial Services Committee, the exemption from U.S. swap rules would apply "unless the Commissions jointly determine that the regulatory requirements of such country or administrative region or other foreign jurisdiction are not broadly equivalent to United States swaps requirements." [House Report 113-103, Part 1, 6/10/13]
Title VII of Dodd-Frank Act Enacted Regulations For Over-The-Counter Derivatives Markets, Including Certain Transactions Outside The U.S. According to the report on the legislation by the House Financial Services Committee: "Title VII of the Dodd-Frank Act seeks to regulate the over-the-counter derivatives (OTC) market in much the same way that equities and futures exchanges are regulated. Because the OTC market is global, Title VII raises questions about the extent to which U.S. regulations will apply to swap and security-based swap transactions that take place outside the U.S. Title VII's plain language makes clear that Congress intended it to apply outside the U.S. only in certain limited circumstances. Section 722 directs that provisions relating to swaps will not apply to activities outside the U.S. unless those activities (1) have a direct and significant connection with activities in, or effect on, commerce of the United States or (2) contravene anti-evasion rules promulgated by the CFTC." [House Report 113-103, Part 1, 6/10/13]
Legislation Driven By Perceived Intent Of One Or More Regulators To Apply Dodd-Frank Requirements Outside U.S. More Broadly Than Congress Allegedly Intended. According to the report on the legislation by the House Financial Services Committee: "The comments and actions of U.S. regulators indicate that they are considering regulations that would result in Title VII being applied more broadly than Congress intended. Further, the Dodd-Frank Act requires both the CFTC and the SEC to issue rules on the extraterritorial scope of Title VII, creating the possibility of two different, potentially conflicting, regulatory regimes. To ensure that one rule is issued to govern the extraterritorial application of Title VII of the Dodd-Frank Act and to ensure that the CFTC and SEC focus their resources and regulatory efforts on jurisdictions that are not broadly equivalent with the U.S. swaps regime, Representatives Scott Garrett, David Scott, John Carney and Mike Conaway introduced H.R. 1256, the Swap Jurisdiction Certainty Act." [House Report 113-103, Part 1, 6/10/13]
Obama Administration Called Bill "Premature," Said Congress Should Allow Regulators To Finish Writing Rules First. According to a Statement of Administration Policy on H.R. 1256, "Regulators are making significant progress with a number of derivatives-related reforms. As part of these efforts, regulators are already coordinating to address the issues raised in H.R. 1256, while taking into account the characteristics of the particular markets they regulate. Given these ongoing coordination efforts, passage of this bill would be premature and disruptive to the current and ongoing implementation of the reforms. The Administration believes regulators should be given the time necessary to complete their work. The Administration consequently opposes passage of H.R. 1256, which would preempt ongoing work and slow the implementation of these vital reforms." [Office of Management and Budget, 6/11/13]
Bill Opponents Said Bill Exposes U.S. Economy To Risk From Foreign Countries' Swaps Rules That Have Not Caught Up To U.S.'s. According to the minority views in the House Financial Services committee's report on the bill, "The financial crisis of 2008 was exacerbated by the largely unregulated international market for over-the-counter derivatives, or swaps. Congress sought to prevent this market from ever threatening the U.S. in the future by passing the Dodd-Frank Wall Street Reform and Consumer Protection Act. While the U.S. was not alone in those concerns, it is years ahead of other jurisdictions. [...] As a result, many market observers are concerned that, our institutions and economy may be at risk from overseas swaps activity. For these reasons, our regulators should continue to be empowered to appropriately apply U.S. law overseas to protect the U.S. economy, including in the interim period while other jurisdictions catch up to the U.S. H.R. 1256, however, presumes that G-20 countries will have swaps rules at the same time as the U.S., and that they will be comparable. This is a mistake." [House Report 113-103, Part 1, 6/10/13]