International oversight needed for derivatives, say regulators

The complexity of the derivatives market means international regulation is the only way forward, according to the heads of three major regulatory agencies.

Timothy Geithner, president of the New York Federal Reserve Bank, Sir Callum McCarthy, chairman of the UK Financial Services Authority, and Annette Nazareth, a commissioner at the US Securities and Exchange Commission, said backlogs in the credit derivatives market had been cut back, but more remained to be done.

Writing in the Financial Times this morning, the regulators said: "Today, the infrastructure that supports the credit derivatives market is substantially stronger... confirmations outstanding longer than 30 days have been reduced by 85%."

But they added that future problems could be beyond the ability of national regulators to solve. "In an integrated global market, we will increasingly find ourselves compelled to seek borderless solutions. In the case of derivatives, a local or national solution would have been insufficient to protect domestic financial markets from the risks posed by market practices," they said.

Banks and brokers should focus next on strengthening risk management for complex structured products, streamlining post-trade processing and dealing with backlogs in other areas, they said.