The top Democrat on the House Financial Services Committee is pushing the Commodity Futures Trading Commission to examine whether U.S. banks are trying to skirt new curbs on derivatives trading.

In a letter to the new head of the regulator, Timothy Massad, Rep. Maxine Waters (D-Calif.) said she was worried American institutions were trying to avoid new rules on derivatives trading by isolating the activity within foreign subsidiaries. While the foreign branches do the activity, the risk is still there for a U.S. bank, she argued.

Specifically, Waters said she was worried that banks were trying to free overseas derivatives trades from new Dodd-Frank rules by removing any language in swaps agreements that indicates the U.S. bank would guarantee the trade, leaving the risk, at least on paper, with the foreign subsidiary.

Waters pushed the CFTC to examine the “substance, rather than the form” of these changes, suggesting she is not convinced tweaking contractual language effectively protects U.S. banks from derivatives risk created abroad.

“Given that large Wall Street banks routinely transact half of their swaps activities through foreign subsidiaries, it is important that U.S. market regulators both work with each other, and with global regulators, towards the goal of international regulatory convergence,” she wrote. “As that process continues, we must ensure that U.S. banks are not importing unregulated derivatives risk back to the United States via any changes to the guarantee relationship with their foreign affiliates.”

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