CFTC allows French swap dealers to use EU capital rules

On May 12 the Commodity Futures Trading Commission issued a conditional substituted compliance determination allowing CFTC-registered French nonbank swap dealers to meet U.S. capital and financial reporting requirements by following the European Union’s Investment Firms Regulation (IFR) and Investment Firms Directive (IFD).

The relief applies only to firms organized and domiciled in France. Firms must notify the CFTC and obtain explicit confirmation from agency staff before relying on the substituted compliance framework for the covered U.S. obligations.

In its order the CFTC found the IFR/IFD regime comparable to its capital and reporting rules for the covered entities. That comparability means the specified French firms may rely on the EU standards instead of complying with both U.S. and EU requirements for the same covered obligations.

The order includes a 180-day period for firms to meet any new obligations the agency attaches to the determination. Affected firms must map which U.S. obligations are satisfied through substituted compliance and which still require direct compliance with CFTC rules.

Comparability determinations are the mechanism the CFTC uses to recognize foreign regulatory regimes that achieve outcomes similar to U.S. rules without requiring identical text. After the 2008 financial crisis the U.S. adopted Dodd-Frank reforms and the CFTC established a capital and reporting regime for swap dealers. The EU developed EMIR and, for nonbank investment firms, the IFR and IFD.

This France-specific determination is narrower than some prior comparability rulings that covered larger EU jurisdictions. The order focuses on the IFR/IFD framework for nonbank investment firms and allows the CFTC to monitor and, if necessary, revisit the determination if a firm’s structure or the EU rules change.

Procedurally, firms must file a notice with the CFTC and await staff confirmation before relying on IFR/IFD standards for the relevant U.S. obligations. Firms that receive confirmation must keep documentation showing how their capital and reporting practices under IFR/IFD align with the CFTC’s covered requirements and monitor both U.S. and EU regulatory developments.