SEC Commissioner Michael S. Piwowar gave a speech before the AIMA Global Policy & Regulatory Forum discussing regulators approaches to international financial regulatory issues. Piwowar stated that on every cross-border issue he is a “proponent of the rationalization of the global regulatory framework by seeking convergence and harmonization of rules through bilateral and multilateral dialogue and the mutual recognition of comparable regimes based on principles of international comity.”
Piwowar explained that broad concepts and “terms of art” not only fail to provide the specificity required by the financial markets, but also lend themselves to being misconstrued as individuals read into the terms what they seek to get out of them. He noted a recent example of the shortcomings of broad definitions is the Path Forward agreement between the CFTC and the EU. The regulators, Piwowar stated, had differing interpretations and understandings of the document due to the broad concepts which left significant room for interpretation.
Additionally, he argued that regulators should not “pull the whole world into the U.S. regulatory sphere.” Instead, he stated that the SEC should take a territorial approach, meaning that an activity may be deemed to occur within the United States either because a transaction is entered into with a U.S. person, or because it is conducted within the United States.
Furthermore, Piwowar stated that if regulators adopt unnecessarily harsh regulations, market participants will move away from the U.S. jurisdictional reach, which some call “regulatory arbitrage.” In order to avoid this, U.S. regulators should take a thoughtful disciplined economic analysis to guide the decision-making process. He cited the CFTC’s recent approach to implementing Dodd-Frank Title VII, which Piwowar said “lacked discipline.” He explained that the CFTC chose to release various “interpretive guidance” which do not contain clear rules and have come under harsh criticisms from regulators and market participants. He stated that “market participants do not need to know whether their regulators support abstract notions of mutual recognition, comparability assessments, or international comity. They do need to know whether their transactions must be reported, cleared, or traded on an exchange, and where they can undertake those activities.”