Friday, April 17, 2015

Gallagher Lambastes FSB’s ‘Coercive’ Global Regulation Tactics

By Amy Leisinger, J.D.

In recent remarks, SEC Commissioner Daniel M. Gallagher addressed the tenuous relationship between global and domestic regulation of the financial industry. He questioned the effects of mandates by the G-20 and the Financial Stability Board (FSB) on national sovereignty and economic freedom and suggested that efforts toward “regulatory harmonization” have moved from facilitating cooperation among regulators to imposing a “top-down, forcible imposition of one-size-fits-all regulatory standards on sovereign nations.” To be truly effective, the official explained, these entities and their members must refocus on regulatory equivalence and substituted compliance. “There is usually more than one way to achieve any given regulatory objective, and it’s not always clear which way is ‘best,’” he noted.

Instead of coordinating the efforts of national regulators, Gallagher continued, the FSB is coercing national authorities to implement its own policies, and “while such regulators may get some things right, they will most certainly get some things wrong—and, having coerced the world to do it all one way, it will go wrong everywhere.” Citing the Financial Stability Oversight Council’s quick following of FSB decisions and policies regarding designation of systemically important financial institutions and imposition of “bank-like” capital requirements on money market funds, the commissioner warned that hasty decisions of “unelected bureaucrats” could have a tremendous impact on the U.S. economy and ultimately be counter-productive.

Advocating a renewed focus on avoiding duplicative standards and overregulation, Gallagher urged regulators to find “common ground” with international counterparts and to acknowledge similarities and quality in regulatory goals and approaches across borders. By acknowledging that there is more than one way to achieve a goal, regulators can provide greater certainty to participants in cross-border transactions and encourage innovation in capital markets, the commissioner said.

 In the U.S., he continued, lawmakers and regulators need to move away from the approach of “regulate first and ask questions later” The domestic capital markets are losing market share to other international financial centers, and this shift may, in fact be “self-inflicted,” Gallagher explained. Increasingly expensive compliance burdens and threats of litigation are likely driving financial business to other jurisdictions, particularly Middle Eastern and Asian markets with regulatory regimes intended to entice issuers and investors. The SEC and other financial regulators should focus less on “de-risking” markets and investments and more on eliminating barriers preventing access to capital markets, he concluded.