Author: Mark Pengelly
Source: Energy Risk | 11 Jun 2014
A lack of guidance on the swap dealer provisions of the US Dodd-Frank Act is turning compliance into a guessing game for swap dealers such as Cargill Risk Management, suggests the firm’s chief compliance officer in a video interview
A lack of sufficient guidance on key provisions of the US Dodd-Frank Act means swap dealers are being left in the dark when it comes to monitoring their own compliance, according to Uzi Rosha, global chief compliance officer at Cargill Risk Management – the Minnesota-based commodity trader’s swap dealing unit.
Speaking in Houston following a presentation at Energy Risk Summit USA on May 21, Rosha was asked how long it took for Cargill to come into full compliance with Dodd-Frank’s swap dealer rules.
“That’s a great question, because you don’t know what full compliance means,” he said. “You can just try to see how others do, but you don’t know you are in compliance until the auditors come and audit the practices and give you a pass grade or not.”
Cargill became the first non-financial company to apply for swap dealer registration under Dodd-Frank in February 2013. Since then, it has been working hard to comply with the rules, which subject firms to tougher standards in areas including capital, margin and business conduct.
Under rules drawn up by the US Commodity Futures Trading Commission, Cargill has been required to draw up a variety of new policies and reports on its risk management activities. But in many cases, Rosha said it was not clear exactly what form these should take. “Companies have little discretion to decide what kind of policies they want to implement… The regulations dictate [the] policies and you have to file your policies with the regulators,” he said. “The hard part is, again, that you need to sit – the back office, compliance [and] legal – put your heads together, and try to make sense of the rules.”
Speaking to colleagues at other swap dealers may be helpful, said Rosha, but ultimately, all firms needed to decide on their own interpretation. “You need really to come up with your own interpretation that makes sense… [Then] you will be able to look the regulators in the eye and say ‘we’re doing our best to comply with the rules’.”
At the moment, firms are required to register as a swap dealer once their annual swap trading volume exceeds a de minimis threshold of $8 billion in gross notional. Following a five-year phase-in period, this level is due to go down to $3 billion. Consequently, more non-bank commodity traders may face similar compliance challenges in the future.
“I don’t know what my colleagues at other firms are thinking, but the [swap dealer] threshold will go down,” noted Rosha. “In the future, we’ll see more and more entities registering as swap dealers.”
