The International Swaps and Derivatives Association (ISDA) has published a proposed principles based substituted compliance methodology which seeks to:
- minimise the burdens on regulators, maintain global markets and avoid market fragmentation, and recommends regional and national regulators to evaluate the other’s regimes to allow for a principles-based approach to cross-border compliance;
- encourage the use a variety of analytical methods (all of which must start with identification of a set of common principles that elaborate on the G-20 regulatory goals) for the purposes of a substituted compliance or equivalence comparisons of one jurisdiction’s
requirements to another’s;
- require that a transparent process is in place between regulators regarding comparability in respect of bilateral dialogue and ultimate decisions; and
- recommends that regulators should consult and cooperate with each other before implementing their derivatives regulations.
To illustrate the proposed methodology, ISDA has also published examples of
how the principles will apply to various areas within derivatives regulation.