Americas: A call for cooperation

Author: | Published: 11 Dec 2013
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If finalisation of the Volcker rule does nothing else (and it will surely do much more), it has highlighted the difficulty of coordinating new regulations among multiple regulators. The struggle has been felt by both the agencies themselves and industries they monitor. The culminating atmosphere of uncertainty has not helped market conditions.

The difficulty for banks has been twofold: how to advise and how to prepare. Industry participants must think through the various implications of rule changes and offer comments to each of the regulators, bearing in mind their different roles. Preparing for so many contingencies is nearly impossible.

Legislation like Dodd-Frank pushes the bounds of regulator cooperation. The expansive nature of the law has required new rules to be addressed by multiple agencies. The development of international markets and new financial products has narrowed the gap between regulators. If this overlapping mandate is not handled correctly, markets will be weighed down by complex and over-burdensome regulations.

The resulting collage of rules can leave gaps, and create hurdles and inconsistencies. Over-the-counter (OTC) swap traders are already facing this issue with the roll-out of swap exchange facilities (SEFs) in the US. The Commodity Futures Trading Commission (CFTC) has said it will recognise registered dealers under similar regimes in other jurisdictions, but it is not clear yet how similar those will be.

Volcker has been a perfect example of such difficulties. The five regulatory bodies involved – the Federal Reserve (Fed), Securities and Exchange Commission (SEC), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) and CFTC – have offered proposals, solicited comments and discussed a range of possibilities. The vote on the final rule, set for December 10 (as IFLR went to press), will likely be a hardline amalgamation of all the proposals.

In-fighting between agencies has been a hallmark of the drawn out process that has exemplified the difficulties of trying to coordinate among regulators with very different goals. The SEC along with the Fed had looked to prevent the Volcker rule from dealing a fatal blow to the business of banking, while the CFTC focused on drafting the strictest form of the rule.

While legislation has been the precipitant for much of these issues, it may also offer a solution. In June, the House of Representatives passed a bill that would force the CFTC and SEC to align their rules for cross-border swaps. Piecemeal legislation won't fix the issue of coordination, but laws that more clearly outline how and where the regulators need to work together could boost clarity.

Regulators must also work together at an international level. Though their purview is national, the industries they monitor operate across borders. Prohibitive or opposing regulations could slow down markets and inhibit national banks in the future. However cooperation is achieved, regulators must understand where their oversight begins and ends, and how to manage the overlap between them.