House Leaders Outline Principles for Regulatory Overhaul

In recent House hearings on the future of financial regulation, leaders of the Financial Services Committee set forth principles for the complete overhaul of the regulatory regime. Rep. Paul Kanjorski, a senior committee member, laid down broad principles to guide reform. He said that transparency must be enhanced regarding complex financial products; and hedge funds and private equity firms must disclose more about their activities. The markets for credit default swaps and other derivatives must also operate more openly and under regulation. Banking and securities must be separate, he continued, and all financial institutions must soundly manage their risks. In his view, regulators must be consolidated into fewer agencies, while enforcement is enhanced at the same time.

There is also a growing consensus for a Financial Products Safety Commission, patterned after the Consumer Products Safety Commission, to vet financial products for investors. Rep. Jackie Spier suggested that, rather than create a new agency; the SEC could be transformed into something capable of protecting investors from overly-risky financial products. In the view of Rep. Ron Klein, a new evolving version of the SEC or CFTC or combination of the two, could give confidence to investors on new complex financial products, or it may have to be a new Financial Product Safety Commission. But in any event, there is a need to rethink and put in place a regulatory and oversight organization that promotes good business practices and gives clear information to consumers so they can make informed investment decisions.