EU to Delay Swaps Capital Rule Amid U.S. Clearing Talks

The European Union is set to postpone the start of stricter bank capital rules for some swaps trades as it negotiates with the U.S. to resolve a regulatory clash.

A committee of officials from EU finance ministries and regulators on Friday backed a delay in the start date of the rules beyond the current deadline of mid-June, a European Commission spokeswoman said. The standards set out how much capital banks must have behind trades that are processed by clearinghouses in countries whose regulations are deemed sub-standard compared with those in the EU.

“Without an extension the capital requirements for exposures” to such clearinghouses “would increase significantly,” the spokeswoman said by e-mail. “This vote also provides our banks with legal certainty.”

The start date may be pushed back six months to mid-December, according to two EU officials who asked not to be identified because the talks aren’t public. The delay is linked to ongoing negotiations between the EU and the U.S. over the scope of their rules for the $691 trillion market for swaps and other over-the-counter derivatives, as regulators seek to plug loopholes exposed by the 2008 financial crisis.

EU and U.S negotiators will hold a key negotiation meeting in Brussels in early May, one of the officials said.

‘Good Progress’

“We’ve been talking to the CFTC for quite a long time, and made some good progress,” Jonathan Hill, the EU’s financial services chief, told reporters in Riga, Latvia today, in reference to the U.S. Commodity Futures Trading Commission.

“We’ve got some issues still to sort out. I think and hope that we can make some progress on that in the near future,” he said, adding the EU has made some policy suggestions to the U.S.

The EU is yet to take a decision on whether U.S. standards for clearinghouses are in line with its own regulations, meaning trades by EU banks cleared in the U.S. would be covered by the tougher capital rules.

After Friday’s vote, it now falls to the European Commission to prepare a formal decision to delay. It would mark the fourth time the deadline has been pushed back.

Banks have urged EU and U.S. regulators to find an accord, warning of damage to global markets if one isn’t reached.

Hill said last year he would be “very disappointed” if a deal can’t be reached before the current mid-June deadline.

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