Monday, May 15, 2017

Experts express skepticism over proposals for deregulation

By John M. Jascob, J.D., LL.M.

A panel of experts at NASAA’s Public Policy Conference expressed deep skepticism over many of the current proposals in Congress for regulatory reform, suggesting that some of the proposals will not only weaken investor protection but may actually result in an increase in regulation. Moderated by New York Investor Protection Bureau Chief Katherine Milgram, members of the panel discussed what adjustments we might see to the legislation and regulation enacted in response to the financial crisis while offering their views on where regulation may be heading in the new administration.

Alabama Securities Commissioner and NASAA President-elect Joseph Borg opened the discussion by saying that we will likely see some deregulation, but he hopes that the process will not go too far in undoing the reforms put in place over the past 10 years. In addition to the reforms implemented under Dodd-Frank, Borg noted that the securities industry has also invested a good deal on money in risk management in the decade since the financial crisis. Borg said that there are many live regulatory issues, and many unknowns. Some of the key areas in which we may see a push for deregulation are the Department of Labor’s fiduciary rule, liquidity management, and the SEC’s enforcement sweep regarding the Customer Protection Rule.

University of Michigan Law Professor Michael Barr agreed with Borg’s assessment that we are in a period of uncertainty. Barr, who was a key architect in drafting the Dodd-Frank Act, said that there appears to be “collective amnesia” in Washington with regard to rolling back some of the Act’s provisions, even while we are still trying to recover from the effects of the financial crisis. For example, Barr said that it would be “insane” to pull back provisions mandating the supervision of systemically important insurance companies and investment banks.

With regard to the Republicans’ proposed replacement for Dodd-Frank, the Financial CHOICE Act, Barr said that we need to look at the bill holistically. Barr believes that the bill is “dead” in the Senate, with no prospects for passing in its entirety. Pieces of the legislation, however, may survive in the House of Representatives.

David Lipton, a law professor at The Catholic University of America, derided the Trump Administration’s "one-in, two-out" proposal for regulatory reform, calling the scheme a "fantasy." Lipton observed that if Congress wants to enact more capital formation devices, such as it did with crowdfunding, then the result will actually be more regulation, not less. Lipton said that crowdfunding and other capital formation devices have resulted in a “breathtaking” complexity and depth of rulemaking. Lipton said that he is fairly sanguine, however, that the world will not change drastically in terms of basic securities regulation.

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