The Commodity Futures Trading Commission just made life a little easier for a specific slice of the derivatives world. On May 12, the agency issued a capital comparability determination that lets certain French nonbank swap dealers satisfy US capital and financial reporting requirements by complying with French law instead.
In English: if you’re a swap dealer based in France and registered with the CFTC, you no longer have to juggle two separate capital rulebooks. One set of rules, applied correctly, now covers both sides of the Atlantic.
What the order actually does
The determination grants what regulators call “conditional substituted compliance.” Specifically, the order applies to CFTC-registered nonbank swap dealers that are organized and domiciled in France. These firms already operate under the European Union’s Investment Firms Regulation (IFR) and Investment Firms Directive (IFD), which govern how much capital non-bank financial firms must hold and how they report their financial positions.
The CFTC looked at those EU rules and determined they’re comparable enough to its own capital and financial reporting requirements. So rather than forcing French firms to comply with both frameworks simultaneously, the agency is allowing them to rely on the European standards they already follow.
There are strings attached, though. Firms must first notify the CFTC and receive explicit confirmation from agency staff before they can rely on the substituted compliance framework. And for any new obligations created by the order, firms get an additional 180 days to come into compliance.
Why this matters beyond the regulatory weeds
The problem these firms face is regulatory fragmentation. After the 2008 financial crisis, both the US and the EU overhauled their derivatives rules. The US went with Dodd-Frank. Europe developed its own frameworks, including the European Market Infrastructure Regulation (EMIR) and, for non-bank investment firms specifically, the IFR and IFD.
Comparability determinations are the regulatory fix for this. The CFTC has issued similar orders in the past for entities in other jurisdictions, recognizing that not every country needs to have identical rules, just equivalent ones. Notably, this France-specific ruling is narrower than previous determinations that encompassed a broader swath of the EU, signaling a calibration of regulatory approaches in response to evolving capital regulations.
This particular order is notable because it targets the IFR/IFD framework specifically, which is the EU’s dedicated regime for non-bank investment firms. By recognizing it, the CFTC is signaling that Europe’s approach to regulating these non-bank players meets its standards.
What this means for market participants
The conditional nature of the order is worth watching closely. The requirement that firms must notify the CFTC and get staff confirmation before relying on substituted compliance means the agency is keeping a leash on the process. If a firm’s circumstances change, or if the EU modifies its IFR/IFD framework in ways the CFTC doesn’t like, that confirmation could theoretically be revisited.
The 180-day compliance window for new obligations also suggests there are incremental requirements baked into the order that go beyond simply rubber-stamping French law. Firms will need to carefully map out which US obligations are covered by substituted compliance and which still require direct CFTC compliance.
