Formal Regulatory Remedies
In light of the Securities and Exchange Commission’s inability to bring money market fund reforms to a vote, Treasury Secretary Timothy Geithner has announced that the Financial Stability Oversight Council will take the matter in hand. Specifically, Geithner announced in a September 27, 2012 letter that the FSOC will propose its own set of options for further money fund reform, which will be open for public comment.
Rep. Peter King (R-NY), a member of the House Financial Services Committee, will soon introduce a bill to suspend enforcement of the Volker Rule until the Treasury Department can certify that other countries have adopted and are abiding by similar statutory restrictions on on proprietary trading and sponsoring hedge funds by financial institutions. The U.S. Financial Services Global Viability Act specifically targets the United Kingdom, France, Germany, Switzerland, Japan, Brazil, China, Canada, and Mexico as jurisdictions of concern.
Despite the legislation’s two-part name, “The Wall Street Reform and Consumer Protection Act,” SEC Chairman Mary L. Schapiro understands financial regulatory reform and consumer protection to be one thing, not two separate goals. In her October 26, 2012 remarks at George Washington University, Chairman Schapiro states that she sees Dodd-Frank, though still a work in a progress, as founded on some very simple guiding principles that benefit all market participants in the long run and are the basis for both sound regulation and consumer protection. According to Schapiro, these principles are:
George Osborne, the UK’s Chancellor of the Exchequer, voiced concernsabout the potential negative effects the proposed Volker Rule provisions may have on the liquidity of global funding markets and particularly non-US sovereign debt markets. Osborne communicated these concerns via a January 23, 2012 letter to Fed Chairman Ben Bernanke.
On January 5, the Consumer Financial Protection Bureau (CFPB) launched its non-bank supervision program. The initiative is mandated by Dodd-Frank, and will be an extension of the CFPB’s bank supervision program that began last July. The program is intended to ensure that banks and non-banks follow federal consumer financial laws.
Despite efforts to delay or prevent them, the Volker Rules are on their way says Treasury Under Secretary for Domestic Finance Mary Miller in remarks to the American Banker Regulatory Symposium. Miller says the five regulators working on the rules have read carefully the 18,000 comment letters on their initial proposal, and expect to issue final Volker Rules perhaps by year end.
As Mark Twain famously said, “The rumors of my death have been greatly exaggerated.” The same can be said for about the rumors of the death of money market reform, following the SEC’s announcement that it’s leaders could not reach consensus on the topic.
In an August 22, 2012 statement SEC Chair Mary Schapiro announced that the much anticipated money market reforms she has championed have hit a wall. It had been expected that the Commission would consider next week options for further reform like a free floating NAV, rather than a firm $1 NAV, perhaps a capital buffer, and a redemption restrictions. Schapiro announced that “because three Commissioners have now stated that they will not support the proposal and that it therefore cannot be published for public comment, there is no longer a need to formally call the matter to a vote at a public Commission meeting.”
A discussion paper published on August 10, 2012 by a team commissioned by the UK Treasury’s Chancellor of the Exchequer takes a look at the structure and governance of LIBOR and the corresponding criminal sanctions regime.
At the request of the Financial Stability Board, IOSCO has published a consultation paper on the potential regulatory reforms of money market funds. The purpose of the consultation paper is to share with market participants IOSCO’s preliminary analysis regarding the possible risks money market funds may pose to systemic stability, as well as possible policy options to address these risks. IOSCO is actively seeking feedback on this preliminary work, and commenters have the opportunity to shape IOSCO’s ultimate recommendations to the FSB.