Monday, June 10, 2013

FSOC Can Urge But Not Command

Recent commentary on the SEC's proposed reforms of money market fund regulation hinted that if the SEC's final regulations in this are not strong enough then the Financial Stability Oversight Council can step in and strengthen them. It is not clear and indeed is highly doubtful that the FSOC can enhance an SEC regulation that it finds wanting. While Senator Bob Corker (R-TN), one of the key authors of the Dodd-Frank Act that created the FSOC, has indicated that FSOC had the power to act on money market reform if the SEC did not act, it is unclear if that power would extend to augmenting SEC action. Indeed, FSOC urged the SEC to act since FSOC believes that the SEC is the appropriate body to act on money market fund reform. It is true that FSOC has a broad mandate to monitor and prevent systemic risks to the financial system, but it is arguable if that broad authority can be granularly applied to fine tune an SEC regulation.

When FSOC proposed a set of recommendations for market fund reform late last year, then FSOC Chair Treasury Secretary Tim Geithner noted that, if at any point the SEC has a majority to go forward, FSOC would suspend its work and let the SEC go forward. Indeed, he added, FSOC would prefer for the SEC to take this back and move forward. Fed Chair Ben Bernanke, an FSOC member, said that the SEC should make the ultimate regulations on money market reform.

At recent house hearings, Rep. Spencer Bachus (R-AL) lamented that FSOC does not seem to have the authority to mandate that the SEC and CFTC coordinate regulations on cross-border derivatives. FSOC can urge coordination but cannot command it. Senator Mark Warner (D-VA) has similarly expressed disappointment with FSOC's lack of authority to direct federal agenies to coordinate the regulatory implementation of Dodd-Frank.