Global regulators urged to minimise inconsistencies

International regulators need to collaborate to minimise inconsistencies in risk mitigation requirements for cross-border non-centrally cleared OTC derivatives, according to the International Organisation of Securities Commissions (IOSCO).

The call for consistent cross-border regulation came as part of the IOSCO's final report on Risk Management Standards for Non-centrally Cleared OTC derivatives, warning the system "could be undermined if inconsistent requirements" were adopted.

The nine new international standards called on authorities to "cooperate when introducing these standards and endeavour to reduce the risks of conflicts and inconsistencies between their regimes with respect to the cross-border application of risk management requirements".

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The report followed called by G20 leaders to strengthen the resilience of the OTC derivatives market after weaknesses were exposed as the global financial crisis hit in 2007.

Data from the IOSCO report estimated that the Bank for International Settlements believes that at the end of 2013 the notional amount of outstanding OTC derivatives contracts totalled US$710 trillion, up from US$633 trillion in 2012.

According to the IOSCO the standards will have three main benefits:

  • Promoting legal certainty and facilitating timely dispute resolution;
  • Facilitating the management of counterparty credit and other risks; and
  • Increasing overall financial stability.

The nine standards proposed by the IOSCO include:

  1. Scope of coverage
  2. Trading relationship documentation
  3. Trade confirmation
  4. Valuation with counterparties
  5. Reconciliation
  6. Portfolio compression
  7. Dispute resolution
  8. Implementation
  9. Cross-border transactions.

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