[Congressional Record (Bound Edition), Volume 157 (2011), Part 5]
[Extensions of Remarks]
[Page 6352]
[From the U.S. Government Publishing Office, www.gpo.gov]




THE INDEMNIFICATION PROVISIONS OF THE DODD-FRANK WALL STREET REFORM AND 
                        CONSUMER PROTECTION ACT

                                 ______
                                 

                           HON. JACK KINGSTON

                               of georgia

                    in the house of representatives

                         Friday, April 15, 2011

  Mr. KINGSTON. 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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