During testimony before the Senate Committee on Banking, Housing and Urban Affairs last week, Jay Clayton – nominated by President Donald Trump to become Chairman of the Securities and Exchange Commission – expressed concern that “our public capital markets are less attractive to business than in the past” and promised to pursue improvements to make them more attractive again. Reducing regulations could help this, he said. During his testimony, Mr. Clayton also suggested that fining companies for law violations may unfairly penalize shareholders and that “individual accountability drives behavior more than corporate accountability.” Mr. Clayton said, “Companies should be held accountable. If they make illicit profits, those profits should be disgorged. There should be deterrence at the company level but shareholders do bear those costs and we should keep that in mind.” Previously, President Trump nominated J. Christopher Giancarlo to serve as chairman of the Commodity Futures Trading Commission. His confirmation hearing before the Senate Committee on Agriculture Nutrition and Forestry has not yet been scheduled.
My View: In 2015, a not-for-profit think tank headed by Paul Volcker, former Chairman of the Board of Governors of the Federal Reserve System, called for a substantial overhaul of the federal regulatory system that oversees US financial services, including merging the Commodity Futures Trading Commission and the Securities and Exchange Commission. Claiming that the oversight of US financial institutions “is highly fragmented, outdated, and ineffective,” the Volcker Alliance issued a report that recommended the creation of a so-called “twin-peaks” model of regulation. This paradigm would consolidate prudential oversight currently administered by a number of banking and financial regulators into one new independent federal agency—a prudential supervisory authority—and collapse the CFTC and the SEC’s investor protection and capital markets oversight functions into another new independent body. (Click herefor background on the Volcker Alliance’s proposal in the article “Volcker Alliance Calls for CFTC and SEC Merger Among Other Financial Oversight Agencies’ Reform “ in the April 26, 2015 edition of Bridging the Week.) Paul Atkins, a former SEC commissioner and current advisor to President Trump, has also called for a merger of the CFTC and SEC. (Click here for the Statement of Mr. Atkins before the Committee on Financial Services of the House of Representative on September 15, 2011.) For me, the alphabet soup of federal agencies with oversight over financial firms, products and markets needs to be rationalized, and the CFTC and the SEC should long ago have been merged. It is solely a naming convention to label financial products as either futures or securities (and now swaps too), and a terrible mistake to base regulatory structure on the nomenclature of products rather than their essential characteristics and purposes. Hopefully, after new chairpersons of the CFTC and SEC are confirmed, a debate on what is the most effective and efficient means of regulating our nation’s markets and participants can begin.