DOCSLIB.ORG

Why Financial Regulation Keeps Falling Short

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Why Financial Regulation Keeps Falling Short Columbia Law School Scholarship Archive Faculty Scholarship Faculty Publications 2020 Why Financial Regulation Keeps Falling Short Dan Awrey Cornell Law School, [email protected] Kathryn Judge Columbia Law School, [email protected] Follow this and additional works at: https://scholarship.law.columbia.edu/faculty_scholarship Part of the Administrative Law Commons, Banking and Finance Law Commons, and the Law and Economics Commons Recommended Citation Dan Awrey & Kathryn Judge, Why Financial Regulation Keeps Falling Short, BOSTON COLLEGE LAW REVIEW, VOL. 61, P. 2295, 2020; LAW SCHOOL LEGAL STUDIES RESEARCH PAPER NO. 20-03; EUROPEAN CORPORATE GOVERNANCE INSTITUTE (ECGI) LAW WORKING PAPER NO. 494/202; COLUMBIA LAW & ECONOMICS WORKING PAPER NO. 617 (2020). Available at: https://scholarship.law.columbia.edu/faculty_scholarship/2604 This Working Paper is brought to you for free and open access by the Faculty Publications at Scholarship Archive. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of Scholarship Archive. For more information, please contact [email protected]. Why Financial Regulation Keeps Falling Short Law Working Paper N° 494/2020 Dan Awrey February 2020 Cornell University and ECGI Kathryn Judge Columbia University and ECGI © Dan Awrey and Kathryn Judge 2020. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permis- sion provided that full credit, including © notice, is given to the source. This paper can be downloaded without charge from: http://ssrn.com/abstract_id=3530056 https://ecgi.global/content/working-papers Electronic copy available at: https://ssrn.com/abstract=3530056 ECGI Working Paper Series in Law Why Financial Regulation Keeps Falling Short Working Paper N° 494/2020 February 2020 Dan Awrey Kathryn Judge © Dan Awrey and Kathryn Judge 2020. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Electronic copy available at: https://ssrn.com/abstract=3530056 Abstract This article argues that there is a fundamental mismatch between the nature of finance and current approaches to financial regulation. Today’s financial system is a dynamic and complex ecosystem. For these and other reasons, policy makers and market actors regularly have only a fraction of the information that may be pertinent to decisions they are making. The processes governing financial regulation, however, implicitly assume a high degree of knowability, stability, and predictability. Through two case studies and other examples, this article examines how this mismatch undermines financial stability and other policy aims. This examination further reveals that the procedural rules meant to promote accountability and legitimacy often fail to further either end. They result instead in excessive expenditures before new rules are adopted, counterproductive efforts to perfect ever more detailed rules, and too little re-evaluation of existing rules in light of new information or changed circumstances. The mismatch between the nature of finance and how finance is regulated helps to explain why financial regulation has failed in the past and why it will likely fail again. It also suggests the need for a new approach to financial regulation, one that acknowledges the limits of what can be known given the realities of today’s complex and constantly evolving financial ecosystem. Keywords: Financial regulation, financial stability, bank regulation, money market regula- tion, administrative law, experimentalism, dynamism, complexity JEL Classifications: G2, K2 Dan Awrey* Professor of Law Cornell University, Cornell Law School 312 Myron Taylor Hall, Cornell Law School, Ithaca, NY 14853, United States phone: + 1 607 882 1443 e-mail: [email protected] Kathryn Judge Harvey J. Goldschmid Professor of Law Columbia University, Columbia Law School 435 West 116th Street New York, NY 10027, United States phone: +1 212 854 5243 e-mail: [email protected] Electronic copy available at: https://ssrn.com/abstract=3530056 CORNELL LAW SCHOOL LEGAL STUDIES RESEARCH PAPER SERIES Why Financial Regulation Keeps Falling Short Dan Awrey & Kathryn Judge* Cornell Law School Myron Taylor Hall Ithaca, NY 14853-4901 Cornell Law School research paper No. 20-03 *Harvey J. Goldschmid Professor of Law, Columbia Law School This paper can be downloaded without charge from: The Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract=3530056 Electronic copy available at: https://ssrn.com/abstract=3530056 Why Financial Regulation Keeps Falling Short Dan Awrey* & Kathryn Judge** This article argues that there is a fundamental mismatch between the nature of finance and current approaches to financial regulation. Today’s financial system is a dynamic and complex ecosystem. For these and other reasons, policy makers and market actors regularly have only a fraction of the information that may be pertinent to decisions they are making. The processes governing financial regulation, however, implicitly assume a high degree of knowability, stability, and predictability. Through two case studies and other examples, this article examines how this mismatch undermines financial stability and other policy aims. This examination further reveals that the procedural rules meant to promote accountability and legitimacy often fail to further either end. They result instead in excessive expenditures before new rules are adopted, counterproductive efforts to perfect ever more detailed rules, and too little re-evaluation of existing rules in light of new information or changed circumstances. The mismatch between the nature of finance and how finance is regulated helps to explain why financial regulation has failed in the past and why it will likely fail again. It also suggests the need for a new approach to financial regulation, one that acknowledges the limits of what can be known given the realities of today’s complex and constantly evolving financial ecosystem. * Professor of Law, Cornell Law School. ** Harvey J. Goldschmid Professor of Law, Columbia Law School. 1 Electronic copy available at: https://ssrn.com/abstract=3530056 Table of Contents Introduction ............................................................................................................................. 3 I. The Nature of Modern Finance ...................................................................................... 7 a. Dynamism .................................................................................................................... 7 i. The cyclical nature of finance .................................................................................. 7 ii. Regulatory endogeneity ........................................................................................... 8 iii. Innovation ................................................................................................................ 9 iv. Radical change ....................................................................................................... 11 b. Complexity ................................................................................................................. 12 c. Unknowns .................................................................................................................. 13 II. How Finance is Regulated ............................................................................................. 15 a. International Financial Regulation ............................................................................ 15 b. Statutes ....................................................................................................................... 16 c. Rulemaking ................................................................................................................ 18 d. Supervision ................................................................................................................. 20 e. Where does this leave us? ........................................................................................... 21 III. Financial Regulation in Practice ................................................................................ 22 a. Money market mutual fund reform ........................................................................... 22 b. The Basel capital and liquidity requirements ............................................................ 28 c. Broadening the lens .................................................................................................... 34 IV. Some Progress ............................................................................................................ 36 a. Reforms Underway ...................................................................................................... 37 i. Harnessing New Technology and Data Standardization ........................................... 37 ii. Stress Testing ............................................................................................................. 38 b. Proposals for Further Reform ........................................................................................ 40 i. Automatic Sunset Clauses ........................................................................................ 41 ii. Experimentalism and Experimentation ................................................................... 42
Load more

Recommended publications
  • Short Sellers and Financial Misconduct 6 7 ∗ 8 JONATHAN M
    jofi˙1597 jofi2009v2.cls (1994/07/13 v1.2u Standard LaTeX document class) June 25, 2010 19:56 JOFI jofi˙1597 Dispatch: June 25, 2010 CE: AFL Journal MSP No. No. of pages: 35 PE: Beetna 1 THE JOURNAL OF FINANCE • VOL. LXV, NO. 5 • OCTOBER 2010 2 3 4 5 Short Sellers and Financial Misconduct 6 7 ∗ 8 JONATHAN M. KARPOFF and XIAOXIA LOU 9 10 ABSTRACT 11 12 We examine whether short sellers detect firms that misrepresent their financial state- ments, and whether their trading conveys external costs or benefits to other investors. 13 Abnormal short interest increases steadily in the 19 months before the misrepresen- 14 tation is publicly revealed, particularly when the misconduct is severe. Short selling 15 is associated with a faster time-to-discovery, and it dampens the share price inflation 16 that occurs when firms misstate their earnings. These results indicate that short sell- 17 ers anticipate the eventual discovery and severity of financial misconduct. They also convey external benefits, helping to uncover misconduct and keeping prices closer to 18 fundamental values. 19 20 21 22 SHORT SELLING IS A CONTROVERSIAL ACTIVITY. Detractors claim that short sell- 23 ers undermine investors’ confidence in financial markets and decrease market 24 liquidity. For example, a short seller can spread false rumors about a firm 25 in which he has a short position and profit from the resulting decline in the 1 26 stock price. Advocates, in contrast, argue that short selling facilitates market 27 efficiency and the price discovery process. Investors who identify overpriced 28 firms can sell short, thereby incorporating their unfavorable information into 29 market prices.
    [Show full text]
  • With Equities Looking Expensive, Where Should Investors Turn?
    Active is: Thinking without limits With equities looking expensive, allianzgi.com where should investors turn? May 2021 US stocks are highly valued, and our 10-step checklist suggests they’re close to bubble territory. Non-US equities offer better value, but we still don’t think investors should drastically pare back their US holdings at this time. For more than a decade, stocks have been on a steady march upwards – and not even the global Key takeaways downturn caused by the Covid-19 pandemic has thrown them off for long. So are equities, – Equities, especially in the US, are very Stefan Hofrichter, expensive – around the level last seen CFA particularly in the US, too expensive? Could they Head of Global even be in bubble territory? If so, when might before the tech bubble burst in the Economics & they pop? late 1990s Strategy To answer these questions, we developed a – High valuations are one of the 10 10-criteria “bubble checklist” inspired by the characteristics of an asset bubble that work of Charles Kindleberger, an economic and we’ve identified – and the majority are financial-market historian. Each asset bubble showing red flags throughout history has been unique in its own – But until the Fed starts to “taper” its way – yet with few exceptions, each one also met essentially all 10 of these criteria. bond purchases, likely in 2022, US equities may very well bubble up further Our analysis indicates that today, US equities demonstrate most of the characteristics of an – We still prefer risk assets at this time asset bubble.
    [Show full text]
  • Speech by Andy Haldane at the Bank of Estonia, Tallinn, on Wednesday
    Folk Wisdom Speech given by Andrew G Haldane Chief Economist Bank of England 100th Anniversary of the Bank of Estonia Tallinn, Estonia 19 September 2018 The views expressed here are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Shiv Chowla, John Lewis, Jack Meaning and Sophie Stone for their help in preparing the text and to Nicholas Gruen and Matthew Taylor for discussions on these issues. I would like to thank David Bholat, Ben Broadbent, Janine Collier, Laura Daniels, Jonathan Fullwood, Andrew Hebden, Paul Lowe, Clare Macallan and Becky Maule and for their comments and contributions. 1 All speeches are available online at www.bankofengland.co.uk/speeches I am delighted to be here to celebrate the 100th anniversary of the founding of the Bank of Estonia. It is a particular privilege to be giving this lecture in the Bank’s “Independence Hall” – the very spot where, on 24 February 1918, Estonia’s Provisional Government was formed. The founding of the Bank of Estonia followed on the Republic’s first birthday in 1919. Reaching your first century is a true milestone for any person or institution. In the UK, when you reach your 100th birthday you receive a signed card of congratulations from the Queen. I am afraid I have no royal birthday card for you today. But I have the next best thing – another speech from another central banker. Times are tough in central banking. Central banks have borne much of the burden of supporting the global economy as it has recovered from the global financial crisis.
    [Show full text]
  • Spdr Bloomberg Barclays High Yield Bond Etf – Reverse Split Option Symbol: Jnk New Symbol: Jnk1 Date: 05/06/19
    #44979 DATE: MAY 1, 2019 SUBJECT: SPDR BLOOMBERG BARCLAYS HIGH YIELD BOND ETF – REVERSE SPLIT OPTION SYMBOL: JNK NEW SYMBOL: JNK1 DATE: 05/06/19 SPDR Bloomberg Barclays High Yield Bond ETF (JNK) has announced a 1-for-3 reverse stock split. As a result of the reverse stock split, each JNK ETF will be converted into the right to receive approximately 0.333333 (New) SPDR Bloomberg Barclays High Yield Bond ETF. The reverse stock split will become effective before the market open on May 6, 2019. CONTRACT ADJUSTMENT Effective Date: May 6, 2019 Option Symbol: JNK changes to JNK1 Contract Multiplier: 1 Strike Divisor: 1 New Multiplier: 100 (e.g., for premium or strike dollar extensions 1.00 will equal $100) New Deliverable Per Contract: 1) 33 (New) SPDR Bloomberg Barclays High Yield Bond ETF (JNK) 2) Cash in lieu of approximately 0.3333 fractional JNK ETF, if any CUSIP: JNK (New): 78468R622 PRICING Until the cash in lieu amount, if any, is determined, the underlying price for JNK1 will be determined as follows: JNK1 = 0.333333 (JNK) DELAYED SETTLEMENT The JNK component of the JNK1 deliverable will settle through National Securities Clearing Corporation (NSCC). OCC will delay settlement of the cash portion of the JNK1 deliverable until the cash in lieu of fractional JNK ETFs, if any, is determined. Upon determination of the cash in lieu amount, OCC will require Put exercisers and Call assignees to deliver the appropriate cash amount, if any. DISCLAIMER This Information Memo provides an unofficial summary of the terms of corporate events affecting listed options or futures prepared for the convenience of market participants.
    [Show full text]
  • Natural Persons, Juridical Persons and Legal Personhood
    Esta revista forma parte del acervo de la Biblioteca Jurídica Virtual del Instituto de Investigaciones Jurídicas de la UNAM www.juridicas.unam.mx http://biblio.juridicas.unam.mx exican M Review aw L New Series V O L U M E VIII Number 1 NATURAL PERSONS, JURIDICAL PERSONS AND LEGAL PERSONHOOD Elvia Arcelia QUINTANA ADRIANO* ABSTRACT. The study of commercial law can be divided into four basic ca- tegories: (a) individuals (natural persons); (b) objects of commerce; (c) legal instruments and (d) administrative and legal procedures. Business relations bet- ween individuals and business entities requires significant legal documentation, including atypical or nonstandard business contracts. A central feature of all business transactions is the “legal entity”, used by organizations worldwide to conduct business. In order for many businesses to carry out routine activities, they must have many of the same legal rights and responsibilities as natural persons. In a word, these entities require “legal personhood”. Which leads us to the question of Legitimation. The most widely used legal instruments are nons- tandardized business contracts. In essense, this is the delineation of contracting parties as entities with well-defined rights and obligations. This authority de- pends, in turn, on the legitimacy of the “personhood” of the contracting parties, which is often a point of dispute in business relations. Regardless of whether one accepts the use of terms “legal entity” and “legal personhood”, they often give rise to immeasurable and diverse conflicts domestically, regional and at global level. This had led to efforts to improve the rules of the International Chamber of Commerce and improve legal models that provide guidance to di- verse nations.
    [Show full text]
  • Asset Securitization
    L-Sec Comptroller of the Currency Administrator of National Banks Asset Securitization Comptroller’s Handbook November 1997 L Liquidity and Funds Management Asset Securitization Table of Contents Introduction 1 Background 1 Definition 2 A Brief History 2 Market Evolution 3 Benefits of Securitization 4 Securitization Process 6 Basic Structures of Asset-Backed Securities 6 Parties to the Transaction 7 Structuring the Transaction 12 Segregating the Assets 13 Creating Securitization Vehicles 15 Providing Credit Enhancement 19 Issuing Interests in the Asset Pool 23 The Mechanics of Cash Flow 25 Cash Flow Allocations 25 Risk Management 30 Impact of Securitization on Bank Issuers 30 Process Management 30 Risks and Controls 33 Reputation Risk 34 Strategic Risk 35 Credit Risk 37 Transaction Risk 43 Liquidity Risk 47 Compliance Risk 49 Other Issues 49 Risk-Based Capital 56 Comptroller’s Handbook i Asset Securitization Examination Objectives 61 Examination Procedures 62 Overview 62 Management Oversight 64 Risk Management 68 Management Information Systems 71 Accounting and Risk-Based Capital 73 Functions 77 Originations 77 Servicing 80 Other Roles 83 Overall Conclusions 86 References 89 ii Asset Securitization Introduction Background Asset securitization is helping to shape the future of traditional commercial banking. By using the securities markets to fund portions of the loan portfolio, banks can allocate capital more efficiently, access diverse and cost- effective funding sources, and better manage business risks. But securitization markets offer challenges as well as opportunity. Indeed, the successes of nonbank securitizers are forcing banks to adopt some of their practices. Competition from commercial paper underwriters and captive finance companies has taken a toll on banks’ market share and profitability in the prime credit and consumer loan businesses.
    [Show full text]
  • Enhancing the Role of Competition in the Regulation of Banks (1998)
    Enhancing the Role of Competition in Regulation of Banks 1998 The OECD Competition Committee the role of competition in the regulation of banks in February 1998. This document includes an executive summary and submissions from Australia, Austria, Canada, the Czech Republic, Denmark, the European Commission, Finland, France, Germany, Greece, Hungary, Italy, Japan, Mexico, Norway, Poland, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States, as well as an aide-memoire of the discussion. The banking sector is one of the most closely regulated sectors of OECD economies. A reason advanced for this close regulation is that small depositors cannot compare risks (or have no incentive to do so, because of deposit insurance), so competition would lead banks to take excessive risks. Controls on risk taking are considered essential to ensure that competition between banks promotes efficient outcomes. Public policy concerns focus on how bank failures could affect small depositors, the payments system and the stability of the financial system as a whole. The goal of promoting or preserving competition might conflict with some actions to deal with bank failures, emergency measures or state aid for failing banks or implicit state support for large banks. In most OECD countries bank regulators and competition authorities are jointly responsible for bank mergers, so interaction and coordination between them are necessary. Because of the political and economic sensitivity of the banking sector, it is perhaps not surprising that some countries apply special competition regimes to it. OECD Council Recommendation on Merger Review (2005) Mergers in Financial Services (2000) Relationship between Regulators and Competition Authorities (1998) Failing Firm Defense (1995) Unclassified DAFFE/CLP(98)16 Organisation de Coopération et de Développement Economiques OLIS : 07-Sep-1998 Organisation for Economic Co-operation and Development Dist.
    [Show full text]
  • BIS Working Papers No 532 Mortgage Risk and the Yield Curve
    BIS Working Papers No 532 Mortgage risk and the yield curve by Aytek Malkhozov, Philippe Mueller, Andrea Vedolin and Gyuri Venter Monetary and Economic Department December 2015 JEL classification: G12, G21, E43 Keywords: Term Structure of Interest Rates, MBS, Supply Factor BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2015. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISSN 1020-0959 (print) ISSN 1682-7678 (online) Mortgage Risk and the Yield Curve∗ Aytek Malkhozov† Philippe Mueller‡ Andrea Vedolin§ Gyuri Venter¶ Abstract We study the feedback from the risk of outstanding mortgage-backed secu- rities (MBS) on the level and volatility of interest rates. We incorporate the supply shocks resulting from changes in MBS duration into a parsimonious equilibrium dynamic term structure model and derive three predictions that are strongly supported in the data: (i) MBS duration positively predicts nominal and real excess bond returns, especially for longer maturities; (ii) the predictive power of MBS duration is transitory in nature; and (iii) MBS convexity increases interest
    [Show full text]
  • Introduction to Network Science & Visualisation
    IFC – Bank Indonesia International Workshop and Seminar on “Big Data for Central Bank Policies / Building Pathways for Policy Making with Big Data” Bali, Indonesia, 23-26 July 2018 Introduction to network science & visualisation1 Kimmo Soramäki, Financial Network Analytics 1 This presentation was prepared for the meeting. The views expressed are those of the author and do not necessarily reflect the views of the BIS, the IFC or the central banks and other institutions represented at the meeting. FNA FNA Introduction to Network Science & Visualization I Dr. Kimmo Soramäki Founder & CEO, FNA www.fna.fi Agenda Network Science ● Introduction ● Key concepts Exposure Networks ● OTC Derivatives ● CCP Interconnectedness Correlation Networks ● Housing Bubble and Crisis ● US Presidential Election Network Science and Graphs Analytics Is already powering the best known AI applications Knowledge Social Product Economic Knowledge Payment Graph Graph Graph Graph Graph Graph Network Science and Graphs Analytics “Goldman Sachs takes a DIY approach to graph analytics” For enhanced compliance and fraud detection (www.TechTarget.com, Mar 2015). “PayPal relies on graph techniques to perform sophisticated fraud detection” Saving them more than $700 million and enabling them to perform predictive fraud analysis, according to the IDC (www.globalbankingandfinance.com, Jan 2016) "Network diagnostics .. may displace atomised metrics such as VaR” Regulators are increasing using network science for financial stability analysis. (Andy Haldane, Bank of England Executive
    [Show full text]
  • Doing Business in Denmark
    DOING BUSINESS IN DENMARK Denmark is often considered an easy and attractive place in Europe to set up a company and to do business. This is in no small part due to the country’s constant political and cul- tural situation as well as the relatively simple and predictable legal situation. As a foreign business or investor contemplating doing business in Denmark, there is, however, still a number of fundamental legal rules and principles to take into account. This guide provides a general introduction to certain legal issues which we believe are rel- evant to know based on our experience with international companies contemplating doing business in Denmark. This guide is not an exhaustive list of all the requirements that might apply to international companies and it is not a substitute for legal advice. We recommend that international companies considering doing business in Denmark seek legal advice tailored to the specific business and industry so as to be successful in their business ventures in Denmark. This guide was updated August 2020. Nedenstående er ikke juridisk rådgivning, og Moalem Weitemeyer har med nedenstående ikke påtaget sig ansvar af nogen art som konsekvens af en læsers benyttelse af nedenstående som grundlag for beslutninger eller overvejelser. Contents 1. Danish political and legal Structure ............................................................................... 3 2. Business Structures and Methods .................................................................................. 3 3. M&A/Takeovers ...........................................................................................................
    [Show full text]
  • Andrew Haldane: the Creative Economy
    The Creative Economy Speech given by Andrew G Haldane Chief Economist Bank of England The Inaugural Glasgow School of Art Creative Engagement Lecture The Glasgow School of Art 22 November 2018 The views expressed here are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Marilena Angeli and Shiv Chowla for their help in preparing the text. I would like to thank Philip Bond, Clare Macallan and Mette Nielson for their comments and contributions. 1 All speeches are available online at www.bankofengland.co.uk/speeches It is a great pleasure to be at the Glasgow School of Art (GSA). For over 170 years, the GSA has been one of the leading educational institutions in the creative arts in Europe. Today, the School continues to provide a conveyor belt of talent that is fuelling the rise in the creative industries, a sector growing rapidly and one where the UK can genuinely be said to be a world-leader. It is creativity, and its role in improving incomes in the economy and well-being in society, that I will discuss this evening. Now, there is a certain irony in me (a middle-aged career public servant) giving a lecture to you (staff and students at one of Europe’s creative hot-spots) about the determinants and benefits of creativity. Don’t worry, that irony is not lost on me. Nonetheless, I hope that by analysing creativity through an economic and historical lens we can learn something about its key ingredients. Developing those raw ingredients, and mixing them appropriately, has been crucial for social and economic progress over the course of history.
    [Show full text]
  • Stock Broker Fiduciary Duties and the Impact of the Dodd-Frank Act Thomas Lee Hazen
    NORTH CAROLINA BANKING INSTITUTE Volume 15 | Issue 1 Article 4 2011 Stock Broker Fiduciary Duties and the Impact of the Dodd-Frank Act Thomas Lee Hazen Follow this and additional works at: http://scholarship.law.unc.edu/ncbi Part of the Banking and Finance Law Commons Recommended Citation Thomas L. Hazen, Stock Broker Fiduciary Duties and the Impact of the Dodd-Frank Act, 15 N.C. Banking Inst. 47 (2011). Available at: http://scholarship.law.unc.edu/ncbi/vol15/iss1/4 This Article is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina Banking Institute by an authorized administrator of Carolina Law Scholarship Repository. For more information, please contact [email protected]. STOCK BROKER FIDUCIARY DUTIES AND THE IMPACT OF THE DODD-FRANK ACT THOMAS LEE HAZEN* In recent years there has been concern about the sufficiency of broker-dealerregulation. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandates the SEC to review and evaluate existing regulation and to adopt such rules as may be necessary to enhance existing regulation. Existing SEC and FINRA rulemaking addresses broker-dealer conduct, but by and large the regulation has been based on principles and standards rather than voluminous detailed rules specifying prohibited conduct. This article examines the extent to which additional regulation is warranted and whether to continue to rely on principles-based regulation, or whether there should be more explicit rules to heighten broker-dealer standards. The article concludes that although the existing framework for broker-dealer regulation is robust, it could be fine-tuned by possibly adding an express fiduciary duty requirement as well as more specific rule-based prohibitions.
    [Show full text]