Commissioner Gallagher Blasts Dodd-Frank

In a speech given on the fifth anniversary of the Dodd Frank Act, SEC Commissioner Gallagher argued that Dodd-Frank "has backfired, strangling our economy, increasing the fragility of the financial system, and politicizing our independent financial regulators," and that it is the "only piece of major securities legislation in U.S. history that was rammed through Congress without bipartisan support."

Although Commissioner Gallagher recognized that prudential regulation is "an important tool," he also expressed his concern that "in practice, 'prudential' regulation can and has evolved into an opaque regulatory system in which the government's invisible hand replaces the market's, transcending rule enforcement and becoming the decision maker for ostensibly private enterprises." Commissioner Gallagher stated that Dodd-Frank, "sought to make prudential regulators Masters of the Universe" by "providing additional tools for central bank apparatchiks to unleash their inner central planners in an attempt to fundamentally alter the very nature of our capital markets." He included the "Fed-dominated" Financial Stability Oversight Counsel ("FSOC"), as an "apparatchik." The Commissioner criticized the Financial Stability Board ("FSB") for preferring "Europeans – for whom capital markets are much less important than the United States – and their pro-prudential regulatory cohorts" to Americans, and labeled the FSB's attempt to "de-risk the U.S. capital markets" as an "attack on U.S. competitiveness."

Commissioner Gallagher criticized the SEC Division of Corporation Finance ("DCF") as a "tool for advancing a radical shareholder rights agenda," and called on the Chamber of Commerce to continue its fight against this "dominant viewpoint" through the Corporate Governance Coalition for Investor Value. He recommended that DCF ensure that "the opportunities inherent in our capital markets remain open and attractive to all businesses," and stressed that this will play "a large role" in determining the future of capital markets as "the engines that power our economy."

Additionally, Commissioner Gallagher said that the FSOC should be structured like "a regulatory college" and "operated like a think tank, via the power of good ideas, backed by solid research, economics, and other science, instead of relying upon diktat." Commissioner Gallagher urged the SEC Division of Economic and Risk Analysis, Enforcement Division and Office of Compliance Inspections and Examinations to "continue to work with the policymaking divisions, and resist the urge to undertake rulemaking through examinations."

Commissioner Gallagher expressed his hope that "the SEC will go back to its roots: allowing disclosure to inform investors and preserve investor choice; letting the market, rather than regulation, decide winners and losers; and using appropriate discretion in exercising its power." He suggested that this might be achieved by "updating existing programs instead of continuing the Dodd-Frank death march of rulemaking."

See: Commissioner Gallagher's Remarks at the Chamber of Commerce Center for Capital Markets.Related news: SEC Commissioner Gallagher Announces Updated Regulatory Chart (with Lofchie Comment) (June 4, 2015).