Derivatives Regulators Risk Creating a ‘Mess,’ Wheatley Says

Regulators in the European Union and U.S. must work together to harmonize rules requiring derivatives to be centrally cleared, or risk creating a “mess,” the U.K.’s top markets regulator said.

“The clear risk is that a patchwork quilt of national and regional rules runs the risk of becoming unworkable,” Martin Wheatley, the chief executive officer of the Financial Conduct Authority, said at a conference in London today.

“There’s also the linked danger that if every national regulator follows suit, you soon create a tit-for-tat environment where any one transaction, or participant, could easily be subject to three, four or five different regulatory regimes,” said Wheatley.

The U.S. and European Union brokered a deal deal in July to resolve clashes in their regulation of the $633 trillion swaps market. The accord broke a deadlock over whether the U.S. could impose its rules on trades booked in Europe. Banks and other swaps traders said the deal reduces the chance they will be forced to comply with conflicting regulatory regimes.

The accord only partly settled how swaps rules will apply across borders and averted a regulatory crisis. Both sides have said further negotiations would be needed on a range of issues.

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