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Chairman David Scott Opening Statement at Hearing on Brexit and Other International Developments Affecting U.S. Derivatives Markets

Washington, June 26, 2019

WASHINGTON (June 26, 2019) – House Agriculture Committee Subcommittee on Commodity Exchanges, Energy, and Credit Chairman David Scott of Georgia delivered the following remarks at Wednesday’s hearing on Brexit and other international developments affecting U.S. derivatives markets.

[As Prepared for Delivery]

“Thank you for joining us today as we look at Brexit and other international developments. This hearing is an important one, and a timely one, as the 27 members of the EU brace for the UK’s exit from the Union, or “Brexit” and the UK approaches a leadership change.

“In 2016, the CFTC completed a three year negotiation for an equivalence agreement on the regulatory treatment of derivative clearinghouses with the European Union. This agreement ensured that both the EU and US clearinghouses operate at the same high standards and at a comparable level of cost to their participants.

“Last year, as the EU prepared for the potential impact of Brexit, the EU Parliament passed the European Market Infrastructure Regulation (EMIR 2.2), which unilaterally scrapped the 2016 equivalence agreement.

“EMIR 2.2 increases oversight of EU and third-country clearing houses, and it has significant implications for the industry in the US.

“Some of the most extreme parts of their suggested policies are:

  • Administrative fees charged to clearinghouses in other countries in exchange for oversight by the EU
  • Comparable compliance discounts instead of grandfathering which means that even when deemed comparable the only difference is a 15, 20 or 35 percent discount on your fees
  • A very complex tiering regime where the difference between tier one and tier two is fees that are as much as seven times higher. 

“The largest concern is a possible relocation provision requiring that all clearing move to the EU either by the letter of the law or by making it so expensive that companies outside the EU will be priced out of competition.

“Everyone in this room knows that financial instruments do not operate in a vacuum. What happens in the EU and the UK will ripple through financial markets just as our decisions here in this country have ramifications for them. It’s my hope that with our conversations today we can begin to explore and better understand what Brexit and the associated geopolitical developments in Europe and elsewhere will mean for the derivatives market in the United States.”

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