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Public Statements

The Indeminification Provisions of The Dodd-Frank Wall Street Reform and Consumer Protection Act

Floor Speech

Location: Washington, DC

* Mr. Speaker, swap data repositories have the ability to provide regulators and markets with information on aggregate data positions that can assist them in evaluating and managing risk. However, that ability can be substantially diminished if important information is excluded from them. One risk of fragmentation or exclusion of data is if a country's laws in practice provide disincentives, or even prohibitions, to the sharing of such data to a repository located in another jurisdiction.

* Sections 728 and 763 of the Dodd-Frank Act require that repositories obtain indemnifications from foreign regulators before sharing information with them. There was no legislative history behind this provision, which was incorporated late in the legislative process, without having been considered in the hearing process. As a result, it was not subject to extensive discussion and consideration prior to the enactment of the Dodd-Frank Act, and its negative consequences must not have been clear to the conferees or the relevant regulatory bodies. I believe that the indemnification provision will significantly impede global regulatory cooperation.

* Foreign regulators are not likely to grant Derivative Clearing Organizations, DCO's, or Swap Data Repositories, SDRs, indemnification in exchange for access to information. Accordingly, regulators may be less willing to access the aggregated market data, resulting in a reduction of information consumption, domestically and internationally, which jeopardizes market stability.

* Further, the provision could have an immediate negative impact on the ability of U.S. regulators to obtain information from repositories located in foreign countries should reciprocal indemnification provisions be enacted in foreign laws. U.S. regulators, like foreign regulators, might be legally or practically precluded from signing such agreements.

* This is not a theoretical concern. Just a few days ago in March, Jean-Paul Gauzes, a French Member of Parliament from the Conservative Party included in a package of 950 amendments put forth by the European Parliament to the European Commission language that would mirror the indemnification clauses in Dodd-Frank Act. The amendment was a deliberate response to the extra-territoriality provisions of ``indemnity'' contained in Dodd-Frank, and adoption of the package is anticipated in May of this year.

* The proposed European language would require the United States government to indemnify EU trade repositories for any expenses arising from litigation relating to the information provided by the trade repository. The provision, which could well be adopted, has the potential to create numerous problems for the United States. For starters, it is not clear that U.S. regulators have the legal authority to enter into such an indemnification. Were they to do so, the indemnification becomes an invitation to such litigation by third-parties, domestic or foreign.

* These problems mirror precisely the problems for EU governments created by the indemnification clauses in Dodd-Frank. In practice, while governments worked to address the issues raised by such requirements, the default position for any SDR would have to refuse to provide such information absent the indemnification, creating fragmentation and information gaps that could meaningfully harm global safety and soundness.

* Preventing the exchange of information between regulators will frustrate efforts to mitigate international financial risk and fragment regulatory oversight on a jurisdiction-by-jurisdiction basis.

* The goal is to ensure that in situations where foreign regulators are carrying out their regulatory responsibilities in a manner consistent with international agreements, which includes maintaining the confidentiality of data, can be appropriately exchanged without Sections 728 and 763 becoming an impediment to the goals of transparency and sound policy.

* In light of the EU calendar on indemnification, swift action to prevent the unintended consequences of this inadequately considered provision of Dodd-Frank is needed.

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