Commissioner Gallagher delivered a speech titled “An Agenda for Europe and the United States” at a Harvard Law School symposium. The speech focused on regulatory harmonization and where the SEC should concentrate its efforts.
Commissioner Gallagher criticized Dodd-Frank, calling it “partisan manifesto untethered to the causes of the financial crisis.” He compared Dodd-Frank’s regulatory efforts on a domestic level to those of the G-20 and the Financial Stability Board (“FSB”) on an international level. He pointed out that the FSB’s regulatory harmonization efforts have “morphed into a top-down, forcible imposition of one-size-fits-all regulatory standards on sovereign nations by opaque groups of global regulators” – a transformation that, in his view, neglects “national sovereignty or consent of the governed.”
He explained that the FSB “one-size-fits-all” regulatory approach is especially evident in a particular memo by FSB Chair Mark Carney, which states that the “true purpose of the FSB is to direct national authorities to implement the FSB’s own policies.” Commissioner Gallagher warned against such “regulatory hubris” shown by “coercive” and “unfettered, unaccountable supernational governance,” and recommended that international regulators work toward cooperation for cross-border regulatory harmonization. He suggested that they create a “high quality foreign regulatory regime to qualify as a substitute for compliance with our own domestic requirements.”
Additionally, Commissioner Gallagher encouraged regulators to zero in on “reducing red tape” instead of “de-risking” markets. He also recommended, in cases in which regulators must impose regulatory burdens, that the rule be tailored narrowly to address the identified problem clearly. This shift, according to Commissioner Gallagher, will improve cost-benefit analyses and reduce regulatory framework burdens for market participants overall.
Lofchie Comment: Commissioner Gallagher raises a number of questions that should be addressed in an open discussion: How much power should the Financial Stability Oversight Council (“FSOC”) assume over the U.S. financial system? If Congress intends for FSOC to assume control over the securities and insurance markets, does FSOC have sufficient expertise to do so, given that it seems dominated by banking regulators? What is the nature of the interaction, and what should the interaction be, between FSOC and the FSB?