Friday, February 15, 2013

Senate Banking Committee Hearing Examines Regulatory Implementation of Dodd-Frank

A Senate Banking Committee hearing on the regulatory implementation of the Dodd-Frank Act focused on the need for regulatory coordination both domestically and cross-border and on the need for adequate economic analysis of the regulations. The Committee is Chaired by Senator Tim Johnson (D-SD).

Noting that proper economic analysis of the Dodd-Frank regulations is not happening, Senator Mike Crapo (R-ID), the Committee’s Ranking Member, asked for a commitment from the SEC, CFTC and the banking agencies that they would comply with the OMB guidance on cost-benefit analysis, which essentially codifies the President’s two Executive Orders in this area. Senator Crapo also asked the agencies to provide the Committee with information on the cumulative impact of all the Dodd-Frank regulations on participants in the financial services industry.

Senator Crapo and Senator Jack Reed (D-RI) expressed concern that the regulation of cross-border swaps may not be sufficiently coordinated. SEC Chair Elisse Walter said that the cross-border coordination of derivatives regulation is very important because these markets, more than others, cross international lines. Chairman Walter noted that the SEC is working with IOSCO and with its global regulatory counterparts who are writing derivatives regulations to coordinate the regulations. They are at different stages in the rulemaking process. CFTC Chair Gary Gensler noted that the European Union, with the recent enactment of EMIR, and Canada and Japan are completing the erection of derivative regulatory regimes, with these markets, along with the U.S., accounting for around 85-90 percent of worldwide derivatives transactions.

Chairman Walter favorably mentioned substitute compliance. CFTC Chair Gensler said that the doctrine of substitute compliance is embodied in the CFTC’s cross-border guidance. The proposed guidance is a balanced, measured approach, said the CFTC Chair, consistent with the cross-border provisions in Dodd-Frank and Congress’ recognition that risk easily crosses borders. Under substitute compliance, where appropriate, the CFTC is committed to permitting foreign firms and, in certain circumstances, overseas branches and guaranteed affiliates of U.S. swap dealers, to comply with Dodd-Frank through complying with comparable and comprehensive foreign regulatory requirements.


Senator John Tester (D-MT) asked Chairman Walter when the SEC would take action on a uniform fiduciary standard for investment advisers and brokers. Chairman Walter said that, while she believes it is the right thing to do and would like to move forward with it, opinion among the Commissioners varies a great deal. Senator Tester urged the SEC Chair to make this a priority, adding that it would help investors.

Senator Tester also noted that, with regard to the JOBS Act, the SEC has blown by statutory deadlines. He is troubled that implementation of the JOBS Act may not be a priority for the SEC. He urged the Commission to make progress implementing the JOBS Act so that small businesses can access the capital markets. Senator Tester reasoned that the full benefits of the JOBS Act cannot be realized until the implementing regulations are finalized.

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