Opening Statements

Remarks as prepared for delivery:

Mr. Chairman, I know that you remember the hearing that we conducted in 2012 on this same topic. It was a good and informative hearing and I expect that today’s hearing will build on that work.

I was looking though the transcript of that hearing in the preparation for today, and I’d like to share some words of wisdom submitted by Chairman Steven Maijoor, who was then and still remains, the Chairman of European Securities and Markets Authority, or ESMA. In his testimony, he summed up the issues that we are talking about today quite well. At the time, he wrote:

"… a number of conflicting, duplicative and inconsistent requirements have been identified when analysing the simultaneous application of different national regulations. These requirements, if applied on a cross-border basis to the same entities and transactions, would, in certain cases, impede a transaction from taking place or might impede an entity from operating with U.S. counterparties. This would have serious consequences for global market liquidity and might even have financial stability consequences.

…

"ESMA considers that it is of fundamental importance to avoid the application of two or more sets of rules to the same entities or transactions, if those entities and transactions are subject to appropriate requirements in their home jurisdiction. Therefore, we would urge U.S. regulators to rely to the maximum extent on equivalent requirements enshrined in EU law, instead of imposing U.S. requirements when those non-U.S. entities are dealing with U.S. persons. When a duplicative application of rules cannot be avoided, we believe it is essential to identify and mitigate any possible conflict that might arise from that situation."

At that time, you and I, and this whole committee argued strenuously against our own US regulators when they sought to push the boundaries of our regulations too far. We were worried about exactly what Chairman Steven Maijoor identified: duplicitous and inconsistent requirements harming global liquidity formation and raising financial stability concerns.

Yet, today, we are at an inflection point in global coordination efforts. It is US regulators who are recalibrating their approach and working to offer solutions to these thorny cross-border issues, and our European colleagues who are failing to heed their own advice. If European regulators persist down this path, they will likely learn that they were correct in their analysis, and find that their actions have left our global markets in disarray.

Mr. Chairman, before I close, I want to mention my deep disappointment in the comments made by a senior commission official at a conference several weeks ago in London. It is particularly personal to me, because you and I so warmly received his testimony on this very topic at that December 2012 hearing.

In their worst light, his comments suggest that the United States does not have a partner, but a competitor in financial market regulation, a competitor who is willing to use its regulations to its strategic advantage. Viewing financial regulation as a competition would be a grave mistake.

But, even in their best light, his comments betray a smugness that is inappropriate among friends. Such casual arrogance breeds mistrust, frustration and needless friction at a time when we cannot afford such intramural sniping.

I have been struggling to make sense of the complete reversal of principle from what our European friends expressed at our 2012 hearing. It’s comments like these that lend credence to the argument that the previous disagreement over CCP equivalence and now EMIR 2.2 never had anything to do with systemic risk, or the safety and soundness of European institutions, and everything to do with retribution and competitive regulatory arbitrage.

I hope that’s not the case. If it isn’t, European leaders should plainly make that clear through their words and their actions.