Commissioner Piwowar Speaks about International Financial Regulatory Issues (with Lofchie Comment)
SEC Commissioner Michael S. Piwowar gave a speech before the AIMA Global Policy and 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, since individuals read into the terms what they seek to get out of them. A recent example of the shortcomings of broad definitions, Piwowar noted, is the Path Forward agreement between the CFTC and the EU. The regulators, he stated, had differing interpretations and understandings of the document due to broad concepts that 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, 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, if regulators adopt unnecessarily harsh regulations, market participants will move away from the U.S. jurisdictional reach; some call this "regulatory arbitrage." In order to avoid it, U.S. regulators should conduct a 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 kinds of "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."
Lofchie Comment: Commissioner Piwowar's comments regarding the lack of discipline and ambiguity in much of the CFTC's Dodd-Frank rulemaking in the international context are matched by the lack of clarity in the CFTC's rulemaking as to domestic transactions. In the various releases adopting its rulemakings, the CFTC often states that a particular term is defined in a certain way, or that a particular provision applies, depending on the facts and circumstances, but without explaining what facts and circumstances would be relevant to a different interpretation. Without further specification, market participants are left speculating as to how the government will apply the "law" in any set of facts and circumstances.