The Commodity Futures Trading Commission has prevailed against a lawsuit waged by industry trade groups against cross-border swaps rules and related guidance. It will, however, have to go back and conduct a more in-depth cost-benefit analysis for several of those rules.
Last year, the Securities Industry and Financial Markets Association, the International Swaps and Derivatives Association, and the Institute of International Bankers challenged the cross-border rules and how the CFTC planned to apply and enforce them. Their challenge included various grievances, including the burden the rules presented, the use of guidance in some matters rather than rulemaking with a full public comment process, compliance with the Administrative Procedures Act, and what they viewed as an inadequate cost-benefit analysis.
A ruling from Judge Paul Friedman, a judge for the U.S. District Court for the District of Columbia includes his agreement that the cost-benefit analyses were inadequate, but rather than vacate any rules he required the CFTC to retroactively conduct that study for several of them. Aside from that demand, he dismissed the challenges and upheld the agency’s actions.
“In the end, the CFTC was not required to issue any guidance, let alone binding rules, regarding its intended enforcement policies,” Friedman wrote, addressing a challenge that its Cross-Border Action Plan should have been full-fledged rulemaking, rather than merely guidance. “Indeed, the CFTC’s decision provide such a non-binding policy statement benefits market participants and cannot now, all things being equal, be turned against it.” He added, with a humorous injection: “Because the majority of the Cross-Border Action looks, walks, and quacks like a policy statement, the Court holds that the majority of the Cross-Border Action is a policy statement.”
The majority of the plaintiff’s claims fail, Friedman added, because Congress “clearly indicated” that swaps provisions within the Dodd-Frank Act, including any rules or regulations prescribed by the CFTC, apply extraterritorially when warranted. The legal challenge, he wrote, “merely seeks to delay the inevitable.”
As expected, the CFTC appalauded the ruling. “I am pleased the court upheld the Commission’s July 2013 policy statement on the cross-border application of Title VII swaps provisions, and rejected a sweeping injunction of the rules that are at the heart of Dodd-Frank’s overhaul of the swaps markets,” CFTC Chairman Tim Massad said in a statement. “I am committed to continuing our efforts to reform the swaps markets, including addressing Congress's concerns that risks undertaken abroad might threaten the health of the U.S. economy.”