Bank of England and US regulators renew deal on clearing cooperation
The Bank of England and US trading watchdog have signed a new agreement to cooperate on the supervision of cross-border clearing of financial transactions.
“The CFTC and the BoE express their willingness to cooperate in the interest of fulfilling their respective regulatory mandates, particularly in preserving the benefits of cross-border clearing activity,” the Bank said.
The BoE said the new memorandum of understanding with the US Commodities and Futures Trading Commission (CFTC) superseded an earlier agreement signed in 2009, to take into account changes since the UK’s departure from the EU in January.
The agreement follows a long-term deal struck by the US and UK last year to jointly oversee each other’s derivatives market amid concerns that Brexit could lead to disruption within the market.
The UK and US dominate the international derivatives market, and both are reliant on the use of venues and clearing houses in the other’s jurisdiction. Together the pair account for roughly 80 per cent of global average daily turnover for over-the-counter interest rate derivatives.
Corporations and financial institutions including banks, insurers and institutional investors use derivatives such as futures or swaps to hedge against movements in commodities, interest rates or currencies.
In a jointly-written op-ed, BoE deputy governor Jon Cunliffe and CFTC chairman Heath Tarbet said the agreement “further reinforces” the close financial relationship between the UK and US.
“Derivatives can seem a remote issue for businesses and households, but they are essential in supporting the real economy,” they said.
“As regulators for the largest derivatives markets in the world, we are committing to continuing to co-operate based on a shared understanding,” the pair wrote in an article for Risk.net.