CFTC chief defends Dodd-Frank progress, presses cross-border regulation

However, offshore dealers could undermine the new protections if they are allowed to remain exempt, he said.

“All of these common-sense reforms Congress mandated, however, could be undone if the overseas guaranteed affiliates and branches of U.S. persons are allowed to operate outside of these important requirements,” he said.

Currently, foreign branches of American financial institutions are not subject to the same rules as their stateside affiliates. Last summer, the CFTC proposed a rule to exert greater oversight of so-called “cross-border” swaps.

Almost a year later, the measure has not been finalized, though Gensler said the agency is working on final guidance.

Ultimately, he said the Dodd-Frank regulations must cover offshore hedge funds and other investment firms that are headquartered in the United States or are majority-owned by U.S. interests.

Gensler said foreign branches of U.S. swap dealers could abide by Dodd-Frank rules through "substituted compliance," where foreign regulations are strong enough to take the place of the American protections.

“If the offshore operations of financial institutions are allowed a free pass from reform, though, we will not fulfill Congress’s intent to end ‘too big to fail,’” he said.