On 20 September 2024, the U.S. Commodity Futures Trading Commission (US CFTC) issued an extension of its no-action relief for nonbank swap dealers (SDs) domiciled in the European Union (EU) and the United Kingdom (UK). This relief, originally granted under US CFTC Letter No. 21-20 and later extended through US CFTC Letter No. 22-10, allows these entities to comply with their home country’s capital and financial reporting requirements in lieu of US CFTC regulations. The new extension provides relief until 31 December 2026, or until the CFTC finalizes a decision regarding the comparability of foreign regulations to U.S. standards.
The No-Action Letter permits these nonbank SDs to operate under their home country’s rules, provided they continue to meet specific conditions, including submitting financial reports to the CFTC, notifying the CFTC if their regulatory capital falls below 120% of the minimum required, and keeping the CFTC informed of their reliance on the No-Action position.
This no-action relief is based on the principle of substituted compliance, which allows foreign-domiciled financial institutions to follow their local regulatory regimes, provided these are comparable to the US CFTC’s requirements. The relief aims to avoid duplicative or conflicting regulations for entities already subject to stringent oversight by their home regulators, such as the UK’s Prudential Regulation Authority (PRA) and the EU’s Investment Firms Regulation (IFR) and Investment Firms Directive (IFD). The goal is to harmonize global regulatory approaches while ensuring that these institutions maintain robust capital adequacy and financial soundness.
The no-action relief was first granted on 30 September 2021, in response to requests from financial associations including the Institute of International Bankers (IIB), the International Swaps and Derivatives Association (ISDA), and the Securities Industry and Financial Markets Association (SIFMA). These groups argued that forcing foreign-domiciled nonbank SDs to follow both their local regulations and US CFTC requirements would create unnecessary operational challenges. As a result, the CFTC allowed SDs in certain jurisdictions to follow their home country’s rules temporarily, provided those rules were in line with international standards such as the Basel framework.
By August 2022, the US CFTC had extended this no-action relief again to allow more time for evaluating whether the capital and financial reporting regimes of foreign jurisdictions were comparable to those in the U.S. In July 2024, the US CFTC issued formal comparability determinations for several jurisdictions, including Japan, Mexico, France, Germany, and the UK, allowing nonbank SDs in these countries to fully rely on their local regulations. However, nonbank SDs in France and those regulated by the UK’s Financial Conduct Authority (FCA) under the Investment Firms Prudential Regime (IFPR) were not yet covered by these determinations and remained subject to further review.
The latest extension of the no-action relief allows these institutions to continue relying on their home country rules until 31 December 2026 or until the US CFTC completes its review. During this period, these entities must still submit regular financial reports and comply with other specified conditions to ensure transparency and regulatory oversight. The relief represents a pragmatic approach by the US CFTC to balance international cooperation and financial stability while continuing to evaluate the comparability of foreign regulatory frameworks.
(Source: https://www.cftc.gov/PressRoom/PressReleases/8971-24, https://www.cftc.gov/csl/24-13/download)
