SEC Under fire

Extract from The Economist

The economic crisis has cast a shadow over the SEC's progress in other areas. Christopher Cox’s SEC has led the push for greater global regulatory co-operation and for American firms to adopt international financial reporting standards (IFRS). It has democratised disclosure of company accounts using interactive databases. Mr Cox has also forced more transparency on executive pay, belying his pre-SEC reputation as a friend of Big Business.

All in all, however, the crisis has exposed the SEC as a cracked piston in a sputtering regulatory engine that dates back to the 1930s. Agencies regulate firms “according to what they were born as, not what they do today,” complains Harvey Pitt, a former SEC chairman. An example is the nonsensical separation of oversight for securities, performed by the SEC, and derivatives, done by the Commodity Futures Trading Commission (CFTC).

Mr Obama has talked about the need for regulatory consolidation. Mary Schapiro, who is due to succeed Mr Cox later this month, pending Senate approval, has publicly advocated merging the two agencies. This would require a doctrinal ruling, since the CFTC’s approach is far more principles-based than that of the SEC, which cleaves to hard rules. It would also call for some deft politics, since they are overseen by separate congressional committees, for whose members disbandment would mean an end to juicy campaign contributions from financial firms.

Bigger changes may be afoot. Regulation will probably be extended to new areas, such as credit-default swaps, which may fall to the SEC. But, under one proposal, the SEC would be replaced by a new business-conduct regulator, with some of its present activities going to other agencies; it has already lost some powers to the Federal Reserve, which is carving out a role as a systemic-risk watchdog. Although a career gamekeeper, Ms Schapiro is said to be more concerned with redrawing the regulatory architecture than protecting turf. That may be just as well. More...