The Dodd-Frank Act was one of the most ambitious pieces of financial services legislation ever enacted. And nearly one year later, the landmark legislation is plagued by setbacks. On the one hand, these setbacks delay rules that many feel are needed to prevent another crisis as the U.S. and the rest of the world slowly emerge from the financial collapse of 2008. On the other hand, it provides additional opportunity for key stakeholders to weigh in, ensuring that the reforms reduce systemic risk and close gaps in regulatory enforcement.
To that end, CFA Institute recently hosted Congressman Robert Hurt (R-VA). The freshman congressman not only represents the Congressional district where CFA Institute is headquartered, but he also is a member of the House Financial Services Committee. The meeting provided a forum to discuss the bi-partisan advocacy outreach on the part of CFA Institute to improve the integrity of the capital markets as well as key regulatory reform issues being taken up by Congress. It follows a recent CFA Institute-sponsored briefing for legislative staff, part of a long-term strategy to increase recognition of CFA Institute as a thought leader in the minds of policy makers in Washington D.C.
Concerns about Regulatory Overreach
During his visit with the CFA Institute leadership team and staff, Hurt expressed concern about regulatory overreach. However, he said an outright repeal of the Dodd-Frank Act — which would face a steep uphill climb in the Democratic-controlled Senate — was not realistic. On the other hand, he predicts changes to the legislation, particularly to the new financial consumer protection watchdog established under Dodd-Frank, the Consumer Financial Protection Bureau.
On derivatives reform, while the congressman recognizes it’s an area “that needs more transparency,” the impact of the Dodd-Frank legislation on the end user of derivatives is an area of concern, particularly for small businesses. For its part, the House Financial Services Committee has proposed delaying several new derivatives rules until September 2012, some 14 months after the regulations were scheduled to take effect.
As part of the wide-ranging discussion, Hurt also alluded to the importance of addressing the moral hazard posed by institutions deemed by Dodd-Frank as “too big to fail,” as well as the future of Fannie Mae and Freddie Mac, the mortgage giants that largely escaped reform in the Dodd-Frank financial overhaul.
The meeting was an opportunity for CFA Institute staff to offer the organization’s resources as an independent authority on ethics in the global capital markets, and to discuss the importance of restoring trust to the capital markets.
And this, of course, begins with the ethical behavior of individual investment practitioners, which, as Hurt stressed, cannot be legislated—something everyone could agree on.