Yesterday, the House Financial Services Committee held a hearing entitled “Regulatory Perspectives on the Obama Administration’s Financial Regulatory Reform Proposals.” The goal of the hearing was to hear the views of the SEC’s Chairman Mary Schapiro and the CFTC’s Chairman Gary Gensler on the Obama Administration’s recent proposals for regulatory reform.

In their statements, Chairman Schapiro and Chairman Gensler voiced their support for the Administration’s plan, saying that it “makes real progress in filling gaps in our financial regulatory framework that became apparent in the wake of the financial crisis.” Both Chairmen reiterated the need for OTC derivatives to be regulated in a manner in which equivalent products are treated similarly. Specifically, they cited four objectives of the proposed regulatory framework:

  • Preventing activities in the OTC derivatives market from posting risk to the financial system.
  • Promoting efficiency and transparency of those markets.
  • Preventing market manipulation, fraud, and other market abuses.
  • Ensuring that OTC derivatives are not marketed inappropriately to unsophisticated parties.

To facilitate the harmonization of regulatory regimes, both endorsed the effort, included in the Administration’s proposal, to amend the securities laws to ensure that the SEC and CFTC have the authority to meet these policy objectives. In both her written testimony and statements to the Committee, Chairman Schapiro emphasized that the SEC should retain authority over securities related derivatives.

Also, Chairman Schapiro registered her support for the enactment of legislation that would require hedge fund advisers, among others, to register with the SEC under the Investment Advisers Act.

Finally, Chairman Schapiro endorsed the proposal to create a multi-disciplinary group of financial regulators to set standards for liquidity, capital and risk management practices. When pressed, she stated that, while a large body, such as that proposed by the Administration, should serve to set standards, a smaller, more focused regulator should be entrusted with the authority to require institutions to sell assets or cease operations in “extraordinary circumstances.”