WASHINGTON -- Too often the initial reactions of federal financial regulators to the recent economic crisis have been driven by political motivations and shoddy economic analysis, Paul Atkins, a former commissioner at the Securities and Exchange Commission, warned on Monday.
In a keynote address kicking off the Insured Retirement Institute's Government, Legal and Regulatory conference, Atkins, now the CEO of Patomak Global Partners, offered a round critique of the Dodd-Frank Act and the myriad rulemaking proceedings that it set in motion. Broadly, Atkins argued, the provisions in the bill that aimed to create a stabilizing effect on financial markets stemmed from a misdiagnosis of the crisis of 2008, which he lays at the feet of the lax housing policies in place at government-backed mortgage lenders Fannie Mae and Freddie Mac coupled with an excessive reliance on ratings agencies.
Instead, Atkins suggested, the financial reform law that Congress produced has created new layers of bureaucracy, such as the Financial Stability Oversight Council (FSOC), and a slew of regulatory processes that could yield a deleterious impact on investment advisors and the clients they serve.
"The problem with crises, as we know, is government tends to grow after them," he said.
In a speech that echoed many of the criticisms that Republican members of Congress have leveled against Dodd-Frank, Atkins urged regulators, particularly those at the SEC and Department of Labor, to undertake rigorous economic analyses as they move forward with issues like the potential expansion of advisors' fiduciary responsibilities and reforms of money market mutual funds.
He decried the "politicization of the SEC over the last few years" that he said motivated the agency's decision to consider rulemakings of politically charged issues unrelated to its core missions of protecting investors and ensuring orderly markets. In that category he places SEC proceedings seeking to require disclosures about conflict minerals, payments made to foreign governments by resources extractors, and, more recently, political contributions.
Atkins urged the SEC, now under the leadership of Chairman Mary Jo White, to abandon what he sees as tangential and politically motivated proceedings in favor of "rational" efforts to improve the financial services sector based on sound economic analysis.
"Rather than deciding actions based on political whims, the highest priority should be given to rulemakings that are responsive to the financial crisis and essential to the commission's mission to protect investors, maintain fair and orderly and efficient markets, and facilitate capital formation. Chairman White has the opportunity to steer a better course. The issues that face the SEC should not be political, anyway. The SEC's mission, at its core, is apolitical -- how to do right by investors and the markets. Only recently have these issues been politicized," Atkins said.
He expressed the concern that the SEC and Department of Labor are not effectively coordinating their efforts to redraw the responsibilities for financial professionals under their respective definitions of a fiduciary duty. The SEC is proposing a uniform standard that would apply in equal measure to investment advisors and broker-dealers, while the Labor Department is mulling an expansion of fiduciary responsibilities for advisors to retirement plans under the Employee Retirement Income Security Act, or ERISA.
Officials at Labor and the SEC have said that they are coordinating their efforts, though a skeptical Atkins suggested that both entities are being protective of their own "turf" as they carve out new rules for providers of financial advice. In particular, he warned of the "expansive" view of fiduciary responsibilities the Department of Labor appears to be pursuing as it prepares to reintroduce its rulemaking proposal, expected in September, before potentially adopting final rules later this year or early 2014.
"Before acting, it's incumbent on the SEC and the Department of Labor under the Administrative Procedures Act to look at cost versus benefits by conducting robust economic analyses. I believe strongly that regulations should be subject to the rule of law, not the rule of what I call the golden gut, meaning that someone in authority thinks that he has the better instincts in his gut and will act on those instincts regardless of analyses or public commentary."
Atkins also spoke derisively of former SEC Chairman Mary Schapiro's "soap opera of efforts" to move forward with money market fund reform, a sequence that began with the SEC acting on its own, then shifted to the FSOC (of which the SEC is a member), and has since returned to the commission. Earlier this month, the SEC produced a fresh set of proposals for new stability safeguards for money market funds, and is currently seeking comments from the public on their efficacy.
Though he credited the SEC for generally improving its economic analysis and producing a "more carefully crafted" proposal for money market reform, Atkins argued that new rules could amount to an assault on highly valuable asset class and have the perverse effect of diverting investors toward more loosely regulated and riskier alternatives.
"Money market mutual funds are a critical part of the financial system. They're a way for families and businesses to save, invest and manage their money as an alternative to an exclusive reliance on banks," he said. "These rules could really drastically change this industry by sharply diminishing the value of these products."
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