How to Improve the Financial Regulatory System in the US


Volcker Alliance. 2015. Reshaping the Financial Regulatory System

One of the most fundamental lessons of the recent financial crisis in the US was that no one regulatory body had the responsibility to maintain a comprehensive understanding of the risks in the entire financial system. The financial regulatory structure is highly fragmented and disjointed. It follows no specific approach to regulation, instead combining several different approaches. To address this weakness, the Dodd-Frank act established the new governance arrangements to facilitate communication and coordination among agencies and enhance the ability of regulators to identify and address threats to financial stability.

A new publication of the Volcker Alliance calls for further reorganization of the current regulatory system. Among the key recommendations which are set out in the report, the following deal with regulatory agencies:

  • The FSOC would be empowered to review the rules and regulations of its member agencies and recommend or require changes to the extent necessary to help maintain financial stability.
  • The OFR would be removed from the Department of the Treasury and become an independent entity, with its director continuing to be appointed by the president and subject to Senate confirmation. The OFR would, as now, have the mandate to collect, compile, and standardize data; regularly publish aggregated data and analysis; have a reinforced emphasis on identifying possible emerging threats to financial stability; and issue reports and recommendations to the FSOC on matters of systemic risk.
  • A new PSA would be established as an independent agency encompassing the prudential supervisory functions currently performed by the already existing regulatory agencies.
  • The SEC and the CFTC would be merged to create a new, independent investor protection and capital market conduct regulator.

(Fabrizio Di Mascio)