May 1, 2018
The Honorable Steven T. Mnuchin
Secretary of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220
Dear Secretary Mnuchin,
Regulatory Cooperation between the United States, Canada and Mexico – leading
the world towards a new model of international coordination
The capital markets support robust trade and investment within and between the United States, Canada and Mexico. As we look towards the third decade of the 21st century, it is vital that policymakers and regulators have the right tools to support the robust crossborder capital flows needed for economic growth and job creation. Effective regulatory cooperation is a vital component of those tools. We are writing to you with our perspective on how that cooperation can be strengthened between the United States, Canada and Mexico.
Since the inception of NAFTA in 1994, financial services have expanded significantly – both in terms of the volume of transactions and sophistication of financial instruments. At the same time, the financial services industry has been subjected to growing amounts of regulation. Much of these regulatory impulses have originated through the G20 and its associated fora, such as the FSB. The U.S., Canada and Mexico are all members of these groups.
The architects of NAFTA could not have anticipated the growth of regulation and how it would increasingly govern cross-border financial services in the 21st century. When NAFTA was created, a financial services committee was established as a platform for the three countries to ensure all three trading partners implemented the financial services aspects of the trade agreement. So, the foundations of the committee were in market access issues. By contrast, in 2018 barriers to cross-border financial services are more likely to arise from inconsistent regulation than from conventional ‘text-book’ trade barriers.
Therefore, a new mechanism, co-existing with the existing NAFTA financial services committee and housed outside NAFTA, to support regulatory cooperation between the three countries is needed. SIFMA welcomes the news that the partner countries have begun work on establishing such a regulatory cooperation facility.
The existing forum between the U.S. and the EU can serve as a model for this new platform among NAFTA signatories. But the U.S./EU dialogue should be regarded as a starting point – not something to be replicated. While the U.S./EU Forum has many strengths and has been improved in recent years, there is still further to go in enhancing its effectiveness. In this regard, the new U.S./Canada/Mexico Forum should lead and not follow.
The architects of this new mechanism (Forum) have a fantastic opportunity to establish an ambitious system of regulatory cooperation. Establishing an effective coordination regime would yield benefits in terms of market coherence, cross-border investment and growth, and allow the U.S., Canada and Mexico to lead the world in regulatory cooperation and coordination, influencing the future shape of other bilateral, trilateral and multilateral fora. SIFMA believes that to maximize the effectiveness of this new Forum, it should be:1
• Forward-looking – Regulatory cooperation between the U.S., Canada and Mexico should be proactively used to identify potential cross-border divergences when policies are being devised. Relatedly, well-defined and clearly communicated timetables for the coordination of regulations between the three will be important to the success of the new Forum. At the most fundamental level, it is crucial that the dates for meetings of the group are arranged and announced well in advance, in the same way, for example, that G20 meetings are arranged and announced.
• Supportive of Similar Outcomes – Deference or mutual recognition to other regimes is a vital approach to successfully pursuing coordinated regulation across borders. These regulatory tools are even more vital in the context of a trading bloc like that to which the U.S., Canada and Mexico belong. Clear, detailed standards for comparability assessments as well as mechanisms for the ongoing assessment of regimes as rulemaking and implementation progress, will be necessary to make the new trilateral Forum a success.
1 These principles for regulatory cooperation arrangements are aligned with the Global Financial Markets Association’s (GFMA) Principles for Achieving Consistent Regulatory Regimes and Supervisory Practices, April 2018, http://www.gfma.org/correspondence/item.aspx?id=995. SIFMA is a member of the GFMA from North America along with AFME in the EU and ASIFMA in Asia.