On January 5, 2022 the Market Participants Division of the Commodity Futures Trading Commission (“CFTC”) issued two no-action letters directed towards swap dealers permitting them to prepare annual audited financial statements in accordance with other countries’ reporting standards. In CFTC letter 22-01, directed to Goldman Sachs Financial Markets Pty Ltd (the “Australian Swap Dealer”), the staff permitted the Australian Swap Dealer to file annual audited financial statements prepared in accordance with Australian Accounting Standards with the CFTC and National Futures Association (“NFA”). Under no-action letter 22-01, those filings will satisfy Regulation 23.105’s requirement that swap dealers without a prudential regulator file annual audited financial statements prepared in accordance with the U.S. generally accepted accounting principles (“GAAP”) or International Financial Reporting Standards (“IFRS”). The Australian Swap Dealer represented that it would file monthly unaudited financial statements prepared in accordance with GAAP. And the Market Participants Division granted this no-action relief only if the Australian Swap Dealer meets four conditions. First, the Australian Swap Dealer must prepare an annual statement showing compliance with regulatory capital requirements set forth in Regulation 23.101, and calculations to satisfy those requirements, in accordance with GAAP. Second, while the Australian Swap Dealer may prepare its annual statement of financial condition, statement of income/loss, statement of cash flows, statement of owner’s equity, and footnote disclosures (as required by Regulation 23.105 (e)) to comply with Australian Accounting Standards, it must prepare the statement of its liabilities subordinated to general creditors’ claims in accordance with GAAP. Third, the Australian Swap Dealer must prepare and file with the CFTC and NFA a reconciliation between its annual audited financial statements and its unaudited December monthly financial statement. Fourth, the Australian Swap Dealer must notify the CFTC if any “substantial differences” between the Australian Accounting Standards and IFRS “would result in material differences to its annual audited financial reporting.”

On the same day, the Markets Participants Division issued CFTC letter 22-02, directed to Morgan Stanley Capital Group (Singapore) Pte. and J. Aron & Company (Singapore) Pte. (the “Singapore Swap Dealers”), in which the staff granted no action relief for the Singapore Swap Dealers to file annual audited financial reports in accordance with the Singapore Financial Reporting Standards (“SFRS”). To receive no-action relief for their use of SFRS, the Singapore Swap Dealers must meet analogous conditions to those set by the CFTC staff for the Australian Swap Dealer. Like the no-action relief granted to the Australian Swap Dealer, the no-action relief provided in letter 22-02 to Singapore Swap Dealers requires them to file their statements of liabilities subordinated to general creditors’ claims and statements showing compliance with regulatory capital requirements set forth in Regulation 23.101, and calculations to satisfy those requirements, prepared in accordance with GAAP. Further, the Singapore Swap Dealers must file reconciliations between annual audited financials prepared under SFRS and December unaudited financials prepared under GAAP. And, each of the Singapore Swap Dealers must notify the CFTC of any substantial differences between SFRS and IFRS that “would result in material differences to its annual audited financial reporting.”

While these no-action letters provide short-term relief to the Australian Swap Dealer and Singapore Swap Dealers for their filings with the CFTC and NFA, those of us who see accounting standards change in and across countries may view the “substantial differences” condition to this relief skeptically. Accounting standards may change country by country so that gauging whether a difference is “substantial” may take more time than would a parallel accounting process. Perhaps investing in back office personnel and programs to prepare all financial statements promptly in accordance with the multiple accounting regimes an entity is subject to will become a competitive advantage. These no-action letters, however, mean those investments needn’t happen today for the Australian Swap Dealer or the Singapore Swap Dealers.

For more information, please see the CFTC Market Participants Division staff letters at https://www.cftc.gov/LawRegulation/CFTCStaffLetters/letters.htm