Building the Financial System of the 21st Century: An Agenda for Europe and the United States

Sec Commissioner Mark T. Uyeda, in a recent keynote speech in Frankfurt, offered some thoughts and observations about cross-border regulation of the financial markets. “The relationship among our regions is important not only to the strength and efficiency of our financial markets, but also to foster shared goals of economic growth, innovation and increased standards of living. This in turn promotes societies that respect freedom, liberty, and other democratic principles but also are economically robust to defend their national and collective security interests.”

Since the 2008 financial crisis, he added, “while much attention has been focused on financial stability, there has been less discussion on regulatory stability. To be effective, the regulatory framework should address clearly identified problems and be supported by appropriate economic analysis. In the aftermath of the 2008 global financial crisis, it was appropriate to take a hard look at our regulations. However, there are understandable concerns that the SEC’s current regulatory agenda lacks a coherent vision and that the current path may create significant disruptions in the financial markets without obtaining commensurate benefits.”

One significant concern for Uyeda relates to the potential for the SEC to adopt final complex rules with compliance dates in close proximity to each other. “In addition, the SEC reviews each proposal’s costs and benefits singularly, but generally does not review related proposals holistically or how they might interact with each other. Yet, engaging in such analysis is vital where proposed rules are likely to have interrelated impacts and overlapping compliance dates. Otherwise, there is a concern as to whether the SEC can demonstrate a reasoned basis in exercising its rulemaking authority.”

To further illustrate his concerns, the SEC’s agenda currently includes more than 50 items. “This is very ambitious and on a scale that rivals the rule proposals issued in the aftermath of the global financial crisis. At this pace and volume, can the public review and meaningfully comment on the proposals?”

Uyeda concerns about the SEC’s current proposals to change regulation are not limited to a domestic perspective, but also about how they might impact global markets. “Rapid changes to the U.S. securities markets regulation can have consequences throughout the world. Securities markets are global markets, and international engagement is important to ensure that regulators and market participants work together.”

The globalization of capital markets can open up additional opportunities for market participants and investors, lower the cost of capital for companies and increase competition in specific markets, Uyeda noted. “These benefits, however, can only accrue through responsible regulation that is appropriate and not overly prudential. Such regulation can enhance the effectiveness of the global capital markets in establishing conduct regulations (e.g., antifraud provisions), disclosure requirements, and market efficiency (e.g., listing requirements, market making and liquidity requirements). As in the domestic markets, carefully evaluating costs and benefits can help to avoid ineffective and costly regulations that could otherwise impose barriers to entry that reduce the diversity of companies, investment advice, and financial service providers, and inhibit competitiveness.”

According to Uyeda, appropriate ways to promote globalization “could include a careful use of a regulatory regime to permit investors to directly access foreign markets, provided those markets are supervised in a foreign jurisdiction under a securities regulatory regime that provides investors with protections comparable to those of the home jurisdiction.”

International bodies such as IOSCO and the Financial Stability Board can also facilitate meaningful dialogue in the regulator and market participant community. These organizations have made efforts to bring together the views of investors and other market participants through roundtables, surveys, and other outreach. However, Uyeda added, “these organizations have a tendency to focus on developing prescriptive standards or launching overly ambitious work plans covering a multitude of topics. I would encourage these organizations and others to avoid the trap to continually publish and produce: more is not necessarily better.”

For the rest of this very interesting speech, please see | Keynote Address at the 21st Symposium on Building the Financial System of the 21st Century: An Agenda for Europe and the United States.