Regulators from the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) met recently to discuss harmonization of their statutes and regulations. The two agencies met for two days—at the CFTC headquarters on September 2 and at the SEC headquarters on September 3—to hear suggestions from various experts, market participants, regulators and investor advocates on how to bridge the gaps and eliminate the overlaps in their regulatory approaches.
The meetings were contemplated by the regulatory reform plan issued by the Obama administration on June 17. In it, the White House asked the two agencies to submit a report by September 30 identifying the differences in their statutes and regulations, and to either justify these differences or recommend changes.
While the Obama administration has taken the idea of merging the two agencies off the table, it has been pushing for SEC/CFTC harmonization and cooperation as part of its broader financial reform agenda. In particular, the administration's over-the-counter derivatives draft legislation, unveiled August 11, calls on the two agencies to jointly adopt certain rules and divide regulatory responsibility.
A key threshold issue is the agencies' differing approaches to regulation. The CFTC uses a flexible principles-based approach, while the SEC employs a strict rules-based approach. In a statement summarizing the first day of meetings, CFTC Chairman Gary Gensler identified the need to conform the two approaches as well as 11 other areas that participants said must be tackled, including standards for prosecuting market manipulation, fiduciary obligations for intermediaries and recognition of entities regulated by foreign jurisdictions.
Gensler noted that, while the agencies must close the regulatory gaps resulting from their separate regimes, they must also ensure that overlap only exists where necessary. Gensler also noted that, where overlap exists, the two agencies must regulate consistently in order to eliminate the opportunity for regulatory arbitrage and uncertainty.
Both Gensler and SEC Chairman Mary Schapiro acknowledged that differences will still be necessary in some areas but that significant benefits could be gained from greater coordination and harmonization.
Story: Regulators talk cooperation, but little progress, Compliance Week (Sept. 9, 2009) (subscription)
Sept. 2 participant statements: available here (HTML)
Sept. 3 participant statements: available here (HTML)
Sept. 2 SEC Chairman remarks: available here (HTML)