Report recommends merging or streamlining two financial regulatory agencies

By Charles S. Clark

November 16, 2012

More than two years after passage of the Dodd-Frank financial reform law, House investigators have faulted two key regulatory agencies for poor coordination in monitoring the ill-fated investments of New Jersey-based MF Global, the bankrupt firm once headed by former Democratic Sen. and Gov. Jon Corzine.

The House Financial Services Oversight Subcommittee, in a report released Thursday, said the Securities and Exchange Commission and the Commodity Futures Trading Commission “failed to share critical information about MF Global with one another, leaving each regulator with an incomplete understanding of the company’s financial health."

Decisions by Corzine and his team to invest in certain products in Europe caused a $1.6 billion shortfall in client-owned funds, resulting in the eighth largest bankruptcy in U.S. history. “We conducted this investigation because MF Global customers deserve to know how and why their funds went missing,” subcommittee chairman Randy Neugebauer, R-Texas, said in a statement. “Market participants deserve to know whether regulatory lapses have been identified and will be corrected and taxpayers deserve to know that regulators are being held accountable so similar losses may be prevented from occurring in the future.”

Full committee chairman Spencer Bachus, R-Ala., spoke of a failure by the commissions to live up to the promise of the controversial 2010 financial reform law in executing interagency cooperation. “This, once again raises the question of whether regulators are so preoccupied writing hundreds of new rules that they’re missing the basics like safeguarding customer funds and protecting investors from financial frauds,” he said.

The report recommended “the SEC and the CFTC streamline their operations, or merge into a single financial regulatory agency that would have oversight of the entire capital markets.” The investigation entailed three hearings; more than 50 witness interviews; and review of more than 243,000 documents obtained from MF Global, former employees and federal regulators. It faulted the company for “a lack of internal controls and an atmosphere that Corzine created, in which nobody could challenge his decisions.”

Spokesman John Nester said SEC is reviewing the report and will consider carefully those recommendations within its jurisdiction. “However, with respect to communications between the SEC and the CFTC regarding the capital charges required of the firm in August 2011, the report neglects to note that our staff in fact informed the CFTC staff of these charges at that time, a fact confirmed by CFTC’s general counsel in testimony before the subcommittee,” he said.

CFTC declined to comment.


By Charles S. Clark

November 16, 2012

http://www.govexec.com/management/2012/11/report-recommends-merging-or-streamlining-two-financial-regulatory-agencies/59593/