Message to G-20: Dodd-Frank Fragmentation Poses Systemic Threat

The current state of U.S. regulatory reform is an example of regulatory fragmentation that threatens the kind of coordinated response required to deal effectively with systemic risks. That was the message of CFA Institute and other members of the Private Sector Task Force on Regulated Professions and Industries in a recent letter to the G-20 Deputies.

The task force brings market perspectives to the G-20’s work on preventing future systemic disruptions to the globe’s financial markets. In the letter issued by the task force — which also includes the International Federation of Accountants, INSOL International, the Institute of International Finance, International Accounting Standards Board, International Actuarial Association, International Corporate Governance Network, International Valuation Standards Council, and International Insurance Society — the U.S. Dodd-Frank law was cited as an example of regulation that unilaterally creates extra-territorial obligations and impacts, especially under the so-called Volcker Rule that imposes limits on proprietary trading. The Task Force noted the threat posed by disparate national regulation to progress on any global reform agenda to improve the ability to monitor mounting systemic risks and mitigate them effectively. CFA Institute has commented previously on the Volcker Rule, commending its intent but finding flaws in its proposed implementation.

In addition to citing examples of regulatory convergence and divergence, the letter urges focused attention to public sector financial management and reporting to bolster the robustness of sovereign credit markets. The letter also urges attention to development of shadow banking, the sustainability of social insurance programs, and disaster (natural and manmade) risk management.

The Task Force represents a unique example of multiple interests collaborating on policy issues of significance, and CFA Institute is pleased to lend the perspective of investors to this group’s work. Because the group’s 2011 report met with such favorable reception at the G-20, our expectation is that we will continue to work with the Task Force as reform efforts progress further.