​US lawmaker to seek 'strong' congressional action on EU clearinghouse law

A senior US lawmaker wants Congress to convey bipartisan disapproval of the EU’s new clearinghouse law but is running into resistance from a leading Republican lawmaker and divisions among market participants.

Democratic Representative David Scott, chairman of a House Agriculture subcommittee, expressed outrage about the law extending EU’s post-Brexit oversight to clearinghouses outside the bloc.

“This is an insult to the American people,” he said at a hearing Wednesday of his Commodity Exchanges, Energy, and Credit panel. “There will be a very strong and adequate response to this. We’re not going to put and make our financial services industry be turned into second-class citizens on the world financial stage. You can bet on that.”

At a minimum, Scott said, European regulators should be sent a record of the subcommittee hearing to convey the depth of some lawmakers’ sentiment.

He said he plans to speak most immediately with House Agriculture Committee Chairman Collin Peterson and the senior Republican, Mike Conaway. Ultimately, he hopes to enlist the support of House Speaker Nancy Pelosi and Republican leader Kevin McCarthy.

— Republican caution —

But Scott’s Republican counterpart on the Commodity Exchanges Subcommittee, Representative Austin Scott, expressed reservations about prompt action.

“The best path forward to me is very clear: take a couple of steps back,” said Austin Scott, who like the Democratic chairman is from Georgia but isn’t related to him.

Speaking of the US and EU, he said, “We share common values. We need each other. We will need each other more in case of a financial crisis in any one of the countries or regions we’re talking about.”

The Republican lawmaker suggested giving US Commodity Futures Commission Chairman J. Christopher Giancarlo or his successor, Heath Tarbert, the opportunity to work out an agreement with the EU. Giancarlo is due to step down July 15.

— Industry divided —

Market participants at the hearing also split on the path forward.

The most ardent supporter of strong and immediate action was CME Group Chairman Terrence Duffy.

“Congress should say, 'We need to make sure this is going to be fixed,'” he said.

Lawmakers should tell the EU, “'We have a whole host of issues we have to deal with you on, and we’re going to put financial services regulation in that bucket,'” Duffy said.

One suggestion Duffy advanced was inviting German authorities, who oversee the Frankfurt-based Eurex clearinghouse, to testify before the subcommittee. Eurex could be a target for possible US regulatory retaliation because it has many American customers, he said.

But Walt Lukken, head of the Futures Industry Association, suggested giving the new CFTC chairman time to work out an agreement with his European counterparts.

Referring to Tarbert, he said, “I would give this chairman some breathing room to negotiate with the Europeans.”

FIA members include the large banks that dominate derivatives trading.

— EU law —

In March, the EU enacted the European Market Infrastructure Regulation known as Emir 2.2 that would potentially subject US-based clearinghouses to supervision by the EU, the UK and the US.

CME Group and the Intercontinental Exchange have expressed concern about overlapping regulation and new fees.

European regulators have requested public input on implementation of the new law.