Reaching out on Regulatory Reform
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.
We need the Consumer Financial Protection Bureau, to restore trust in the financial system. Elizabeth Warren can do it. As investment managers, it is in our own interest.
Thank you, Ann, for your comment about the need for the CFPB. You are not alone in your view of the need for the Bureau, but you are among the minority of U.S.-based CFA Institute members, based on two separate surveys (http://www.cfainstitute.org/about/Pages/surveys.aspx?intCamp=surveys) we took in the year after the financial crisis. In the most recent, 59 percent disagreed with the idea of proposing a new consumer protection agency.We have heard from Republicans in both the Senate and the House of Representatives that the biggest concern about the CFPB is governance. Dodd-Frank gave the agency access to funds coming from the Federal Reserve that Congress has no authority to oversee. I am no expert on the matter, but Republican staff members question the constitutionality of such an arrangement.There also is the question of the Bureau’s rule-making authority. In particular, it can subject regulated institutions to its rules, and other regulators have no power to delay or prohibit implementation. The sole exception is for the newly created Financial Services Oversight Council — of which the CFPB director will be a member — to conclude that a rule is a threat to institutional safety and soundness.What this means is that it is unlikely the curtain will come down on the CFPB before its debut. But there is likely to be a significant rewriting of the script before the first act.
If everyone was like you the world could be a much far better place to reside in. Good insight, keep up the great get the job done.