SEC Commissioner Gallagher Urges “Regulatory Humility” before International Regulators

In his speech before the Annual International Institute for Market Development, SEC Commissioner Daniel M. Gallagher discussed cooperation among regulators and post-crisis shortcomings in regulatory harmonization.

Stating that “harmonization” has become a euphemism for “forcing nations to accept a unitary set of regulatory standards created by international bodies,” Commissioner Gallagher contended that the approach taken thus far assumes not only that there is a single regulatory solution to a problem, but also that, simply by joining together in international forums, “imperfect regulators can find that perfect solution.” That, he suggested, is the height of regulatory hubris.

(He cites the recent FSB/IOSCO Consultative Document proposing methodologies for designating globally active systemically important investment funds as particularly problematic.)

Commissioner Gallagher concluded by urging “regulatory humility.” Importing U.S. or EU rules, he noted, would not make sense. Reminding the audience that the SEC’s foreign counterparts have regulatory goals similar to its own, the Commissioner stated that he believes the correct alternative is cooperation through the processes of regulatory equivalence and substituted compliance. This, he stated, will avoid complicated cross-border regulatory disputes and “provide greater certainty and predictability to cross-border transactions.”

Lofchie Comment: There was a time when the United States could boast of having such a sensible regulatory system that other nations ought to imitate it. Post Dodd-Frank, it is impossible to argue that other nations should follow the U.S. model, particularly the U.S. model as implemented by the CFTC in the last several years. Assuming the goal is to create sensible and transparent financial regulation that correlates positively with economic growth, other nations should evaluate their own regulatory needs independently and come up with a sensible set of rules. Perhaps their rules may serve as a model for the U.S. The House’s recent passage, with a bipartisan vote, of a measure to reauthorize the CFTC, but subject it to rational restraints is a positive sign that not even the United States Congress believes that U.S. regulators are leading the world on the right path.

See: Commissioner Gallagher’s Speech.
Related news: House Agriculture Committee Approves Bipartisan Legislation to Reauthorize CFTC (April 10, 2014).