On Monday, U.S. Securities & Exchange Commissioner Daniel M. Gallagher spoke at a SIFMA conference in Charlotte on "SEC Priorities in Perspective." Gallagher was one of the three Commissioners who declined to release Chairman Mary Schapiro's money market reform proposals, saying, "After careful consideration, we determined that the changes the Chairman advocated were not supported by the requisite data and analysis, were unlikely to be effective in achieving their primary purpose, and would impose significant costs on issuers and investors while potentially introducing new risks into the nation’s financial system." He said in his most recent speech (which addresses money funds later in the talk), "I would like to talk today about regulatory distraction. By that, I mean a state of affairs in which a regulatory body is so inundated with external mandates that it risks losing focus of its core responsibilities. Given the mandates flowing from Congress, in particular those in the massive, 2319 page Dodd-Frank legislation, this is a condition that we at the Commission must be very careful to avoid."
Gallagher commented, "As the newest Commissioner at the SEC -- I started just over ten months ago, I knew I was coming back to the agency during an intensely regulatory and reactive period, given the Dodd-Frank mandates, the response to the Madoff and Stanford Ponzi schemes, and the reaction to allegations of policy failures leading up to the crisis. Indeed, I was on the Staff before and during the crisis, and later during the negotiation of what eventually became Dodd-Frank, so this was no surprise. I assumed I would be faced with two major tasks - evaluating and voting on regulations responsive to the financial crisis, and working to ensure that the Commission maintains a clear focus on its core responsibilities. To be sure, we are busy working on many of these activities, but the balance is not what you might have expected it to be."
He continued, "Dodd-Frank was enacted to, among other things "promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail," and to protect the American taxpayer by ending bailouts." These are all extremely laudable goals. However, the statute's goals and its mandates are often unrelated."
Gallagher explained, "All-told, Dodd-Frank contains approximately 400 specific mandates to be implemented by agency rulemaking. A conservative estimate assigns almost 100 Dodd-Frank mandates to the SEC for implementation by rule. Many of those have statutory deadlines. The SEC has adopted final rules implementing nearly a third of those statutory mandates. So while the SEC, like other financial sector agencies, will be busy implementing Dodd-Frank for a long time to come, it is equally true that one immediate effect of Dodd-Frank was to increase dramatically both the volume and pace of SEC rulemaking. It is not an exaggeration to say that the Commission is handling ten times the normal rulemaking volume.... The pace is unrelenting, and the substance is critically important to the U.S. capital markets. We need to get a lot done fast – no question about it – but it's even more important that we get it right."
He added on NRSROs, "Given that the Commission has been analyzing the removal of rating agency references since former Chairman Cox and the Commission proposed removing them in 2008, I hope the staff will put forward a recommendation soon on the two most significant SEC rules embedded with such references - the so-called net capital rule, and the money market fund rule. Action on these matters would not only satisfy a Dodd-Frank congressional mandate, but it would be a long-delayed and much needed step towards addressing a core problem infecting the U.S. financial markets and regulatory system. More than any other action the Commission has taken since Congress took bold action to give the SEC formal oversight authority over credit rating agencies, fulfillment of the 939A mandate, if done properly, would serve to protect investors and markets alike from the failures of the credit rating agency industry."
Gallagher says on money funds, "At the same time, it is important that we recognize that there are areas that are crisis-related, but are not addressed or even referenced in Dodd-Frank. They nevertheless warrant Commission time and resources – perhaps on a considerably more pressing basis than certain of the Dodd-Frank mandates. The number one issue at the SEC that falls into that bucket is – still today – money market fund reform. Believe it or not, money markets funds, despite being called by some the third rail of systemic risk, and despite featuring prominently in the financial crisis, were not addressed in 2319 pages of financial crisis legislation. And now this, as most of you have probably seen, has become a highly contentious issue at the Commission. Despite recent headlines, I hope and expect that the Commission will make a decision on appropriate reforms in this area soon after our economists have conducted an analysis of the key issues Commissioners Aguilar, Paredes, and I have raised. Acting without the benefit of such an analysis - in the context of a $2.5 trillion industry critical to investors, municipalities, and other issuers - would, quite frankly, be irresponsible."
