Speech by SEC Commissioner:
Comments on Regulation R Final Rules
Commissioner Paul S. Atkins
U.S. Securities and Exchange Commission
SEC Open Meeting
September 19, 2007
Thank you, Mr. Chairman. I would like to thank you, Chairman Cox, and Erik Sirri for your leadership on this rulemaking. And I would like to recognize and thank Erik's staff for their efforts in working with the banking regulators to prepare these final rules. The taxpayers should thank the United States Congress for bringing order to the playground; without Congressional intervention, I do not believe we would be adopting final rules today — or this decade for that matter. I would also like to acknowledge the efforts of former Fed Governor Sue Bies, who worked hard on achieving this result, and current Fed Governor Randy Kroszner, as well as John Dugan and Julie Williams of the Office of the Comptroller of the Currency.
As the Chairman noted, I have said in the past that Reg. B stood for "broken," but luckily — as we did when we substituted Audit Standard 2 with Audit Standard 5 — we have righted a wrong. Now, I have another suggestion for what Reg. R should stand for: in addition to "repaired," maybe in honor of Governor Kroszner's substantial contribution to these final rules we should call it Reg. "Randy."
Erik, now that the NRSRO rules are final, and Reg. R will soon be, you will have run out of Congressionally-mandated projects! Maybe you can move on to something proactive — imagine that! Maybe you could revisit the net capital and margin rules? Maybe we could move to a VAR model for all market participants. Maybe a "one-pot" system of portfolio margining?
This has not been an easy path — from interim final rules in 2001, to proposed rules that simply did not work in 2004 (2004 sure was a woeful year for S.E.C. rulemaking!), to December's proposed rules, to today's final rule proposal — this rulemaking has been a bumpy ride.
Eight years after the Gramm-Leach-Bliley Act was signed into law, the S.E.C. — this time in coordination with the Federal Reserve Board — finally appears to have crafted implementing rules that should be useful to broker-dealers, banks, and thrifts. And the rules we are adopting today are carefully crafted to ensure that the SEC satisfy it's mandate to protect investors.
The final rules are a marked improvement from the proposed rules — it seems that many of the excruciatingly prescriptive aspects of the proposal have been tempered. Indeed, it seems that Former Federal Reserve Chairman Alan Greenspan's comments on proposed Regulation B have finally been heeded. In 2004, Chairman Greenspan noted that:
Far from implementing the "exceptions" for banks adopted by Congress, the Proposed Rules would insert the Commission to an unprecedented and unforeseen degree in the management of banks' internal operations. The track record of how banks conduct the activities covered by the GLB Act's exceptions does not warrant this response, the language of the GLB Act does not require it and the legislative history of the GLB Act indicates that Congress did not want or intend it.
Despite our progress, there is still an incredible amount of detail in the proposed rules, especially with respect to networking. I find this type of regulation to be unnecessarily prescriptive, and I imagine it will be a shock to banks used to a principles-based regulatory approach. At a time when the Commission is trying to fend off criticism for not employing a principles-based approach to regulation, this rulemaking will not help our cause.