12 November 2008

CFTC Lukken calls for complete regulatory overhaul

The CFTC Chairman calls for a new regulatory system accompanied by a complete rewrite and modernization of the laws and regulations. A simple CFTC – SEC merger is ineffective and outdated, he said.

“Courageous regulatory reform is most needed”, CFTC Chairman Walter Lukken said and calls for an objectives-based regulatory system consisting of three primary authorities consisting of a new Systemic Risk Regulator, a new Market Integrity Regulator and a new Investor Protection Regulator.

 

This broad restructuring must be preceded or accompanied by a complete rewrite and modernization of the laws and regulations governing the financial markets, Lukken said.

 

A simple merger of the CFTC and the SEC - along with its rules-based model and culture - would be ineffective and would only reinforce our outdated regulatory structure, Lukken said. “Simple merger is a recycled idea when bold solutions are needed”, he underlined.

 

The new direction for our regulatory system should be objectives–based “similar in concept to the reforms advanced by Treasury Secretary Paulson’s Blueprint and Paul Volcker’s Group of Thirty Report”.

 

Ø       A new Systemic Risk Regulator would have the responsibility of policing the entirety of the financial system for “black swan” risks that could cause a contagion event and take preventative action against such occurrences.

Ø       A new Market Integrity Regulator would oversee the safety and soundness of key financial institutions, including exchanges, investment firms and commercial banks whose failure may jeopardize the integrity of the markets.

Ø       A new Investor Protection Regulator would broadly oversee investor protection and business conduct across all firms in the marketplace.

 

To quicken the process of reform Lukken supports the creation of a bi-partisan select Congressional committee which seems “almost a necessity, given the multiple committees of jurisdiction on this topic”.

 

However, in the near term, regulators should create a clearinghouse for credit default swaps and calls for “immediate steps to be taken by global authorities.”

 

“One global idea that should be seriously discussed is standardizing the sharing of international market data among regulators”, Lukken said.

 

Full speech

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