By Lene Powell, J.D.
In an open letter to President Trump and key congressional and regulatory leaders, FIA president and CEO Walt Lukken urged a “wholesale review” of all financial reform regulation and the Dodd-Frank Act. In particular, the derivatives association head urged that although the Dodd-Frank derivatives provisions and subsequent regulation have led to some improvements to the swaps and futures markets, there are also significant challenges. A comprehensive look at the cumulative regulatory burden is needed to determine where reform or repeal is appropriate, he said.
The letter was sent to President Trump, SEC and CFTC commissioners, and leaders of the House and Senate Agriculture, Senate Banking, and House Financial Services committees.
Wholesale review of regulation. Lukken first pointed to some benefits of Dodd-Frank derivatives reform, including increased safety, soundness, and transparency due to efforts by exchanges, clearinghouses and their members, and customers to implement central clearing and regulated trade execution in swaps markets. Seventy-five percent of interest rate and credit default swap transactions are now cleared, compared to only 15 percent before the financial crisis, Lukken said.
However, the FIA is concerned that the cumulative burden of regulation appears to be harming competition, reducing market liquidity, and stifling innovation and growth. Volume and growth are stagnating and industry members are consolidating, with the result that risk is now more concentrated. Lukken asked why commercial enterprises that had nothing to do with the crisis are being saddled with dozens of new rules.
Smart regulation and enforcement. In conducting a comprehensive regulatory review, policymakers should tailor rules to risk posed, taking into account public input and conducting thoughtful cost-benefit analysis, said Lukken. Regulators should focus enforcement efforts on unlawful acts that harm investors and markets, not technical violations caused by regulatory complexity.
Globally accessible markets. Lukken said regulators must create a regime that allows for cross-border access without overly burdensome and duplicative regulations. He urged that the U.S. should follow the example of the European Union, which is currently reviewing its financial reform legislation,
Focus on innovation and competition. To promote responsible innovation and fair competition for market participants, regulators should craft rules to not only protect the marketplace but also incentivize innovation and healthy market behavior, said Lukken. Policies that promote technological innovation make markets more efficient and accessible and can also lead to public benefits through improved tools for oversight and infrastructure security, he observed.
Lukken emphasized that it is essential to ensure that risk management tools provided by derivatives markets remain available, affordable, and accessible for businesses. He said he looks forward to working with policymakers to consider how to best reform Dodd-Frank in a coordinated manner that benefits the markets and their users.