The Acting Chairman of the U.S. Commodity Futures Trading Commission, Walter L. Lukken, announced today that he will not only step down as Acting Chairman but will also leave the agency shortly after President-elect Barack Obama’s inauguration. His term was not to expire until 2010.
In the same speech in which he announced his intention to resign, Acting Chairman Lukken laid out a plan for new financial regulatory structure. He called for an “objectives-based regulatory system consisting of three primary authorities; a new Systemic Risk Regulator, a new Market Integrity Regulator and a new Investor Protection Regulator.” The new regulators would divide up the different functions of the CFTC, the SEC and the various banking regulators. The systematic risk regulator would police the entirety of the financial system for risks that could poison the whole system. The market integrity regulator would oversee the safety and soundness of key financial institutions, including exchanges, investment firms and commercial banks. The protection regulator would broadly oversee investor protection and business conduct.
The proposal would require a complete rewrite and modernization of the rules and regulations that govern the financial markets. In the near term, Acting Chairman Lukken proposed creating a bipartisan panel to study oversight. He also suggested that the leaders of the Federal Reserve, the CFTC and the SEC should set up a board to share information and to pass joint rules.
Chairman Lukken’s proposal is similar in spirit to the paper that the U.S. Treasury released in March titled “Blueprint for Financial Regulatory Reform.” That proposal also advocated for sweeping regulatory changes. That plan was also premised on the notion that fewer regulators are better and proposed to consolidate authority in a smaller number of stronger agencies. Treasury Secretary Paulson’s plan was met with much criticism, but would have meant the Federal Reserve would more directly oversee and monitor financial development and could have eliminated the SEC pursuant to a merger with the CFTC. That plan would also have created a Mortgage Origination Commission. In addition, the proposal would have eliminated the Office of Thrift Supervision and created a new federal insurance charter.
Chairman Lukken made it clear that he opposes a merger of the CFTC and the SEC, something for which the Chairman of the SEC, Christopher Cox, has advocated recently. “In Washington, this is code for the larger SEC - along with its rules-based model and culture - taking over the principles-based CFTC. In my view, this would be ineffective and would only reinforce our outdated regulatory structure. Simple merger is a recycled idea when bold solutions are needed,” he said.
Notably, all of the proposals above are products of Bush Administration appointees. Congressional Democrats and President-elect Obama have also expressed an interest in overhauling, or at least updating, the current regulatory structure, but it is unclear whether they would share the vision articulated by Treasury Secretary Paulson or Acting Chairman Lukken. On October 21, the House Financial Services Committee held hearings on the future of financial regulation and more Congressional hearings are expected.