Readers of these pages will know that much of my writings on the Financial Services and Markets Bill, currently making progress through Parliament, revolve around the question of Regulator accountability, not least to the legislature.
Clearly, this is in no sense a uniquely UK preoccupation. Just a couple of weeks ago, Washington waded in, the House financial services committee calling in the Securities and Exchange Commission (SEC) with more than a few matters of concern around accountability.
Opening the hearing, Chairman McHenry put it to the Chair of the SEC, Gary Gensler:
“We have a constitutional duty to conduct oversight of the agencies under our jurisdiction and we will continue to do so aggressively.”
“Let’s start with digital assets. Under your leadership, the SEC has brought nearly 50 separate enforcement actions against digital asset firms. And now your agency is requesting an additional $78 million to expand your enforcement agenda.”
“At the same time, you have refused to provide clarity on whether digital assets offered as part of an investment contract are subject to securities laws. And, more importantly, how these firms should comply with those laws.”
“You’re punishing digital asset firms for allegedly not adhering to the law when they don’t know it will apply to them. That’s nonsensical.”
“The Administration has said it, the Fed has said it, and I’ll say it again: Congress must provide clear rules of the road for the digital asset ecosystem.”
On this point, what we have currently proposed for digital assets in our Financial Services and Markets Bill, here in the UK, does exactly that.
As Chair McHenry put it, the difficulty is, without clarity:
“Regulation by enforcement is not sufficient nor sustainable.”
“[The SEC] approach is driving innovation overseas and endangering American competitiveness.”
With the repatriation of regulations from the EU it is critical that the UK Parliament has appropriate oversight, focus and input into the regulatory process.
It appears this is currently problematic in the US. Chair McHenry highlighting a lack of consultation and oversight and what he described as the SEC’s “overly aggressive rulemaking agenda.”
He pointed out:
“In the past two years, the Commission has proposed 53 new rules at a breakneck pace. That’s twice as many rules as your predecessors in the same time period.”
McHenry pulled no punches:
“Time and time again, you have cut the public out of the rulemaking process with unreasonably short comment periods, even for major rules like your disastrous climate disclosure proposal and equity market structure overhaul.”
“You have failed to justify these significant rules with thorough evidence, careful studies, and cost-benefit analysis.”
The cost- benefit analysis point should sound loudly for the UK as the current Bill sets out much on this. As I have written before, there is much in the Bill which needs to be strengthened, to ensure the Regulator can in no sense, even if only perceived to, be marking their own homework.
McHenry ended in no uncertain terms:
“Finally, it appears you’ve been so busy weaponizing the SEC to push your agenda, you’ve forgotten a key pillar of the Commission’s statutory mission—capital formation.
“Unlike you, this Committee is working to strengthen public markets, help small businesses and entrepreneurs, and increase market access for all investors to ensure the long-term growth and prosperity of this country.
This summary encapsulates so much of what our FS and M Bill must achieve. The UK can be – and must be – the place to start, scale and, if so desired, to sell a business. It must be the country for the consumer. Competitiveness and consumer protection both to the fore, in no way mutually exclusive.
This Congress’ financial services committee hearing is not the only piece of this developing jigsaw either.
On April 13, the Chairman of the Subcommittee on Capital Markets, Ann Wagner, sent a letter to Chair Gensler requesting a thorough assessment of the effects of sweeping regulatory proposals on small and burgeoning companies that risk creating undue barriers to entry and stifling innovation in the marketplace.
The Committee Chair McHenry and Co-Chair Wagner are also demanding that the SEC revise its rulemaking agenda by pursuing reforms that strengthen public markets, expand opportunities for underrepresented entrepreneurs, and allow small businesses to grow.
As we approach the next stage of Parliamentary scrutiny for the FS&M Bill, here in the UK, the issues remain largely the same in relation to the need for Regulator accountability to Parliament and the need to strengthen the operation, scrutiny, membership, and agenda setting of the proposed CBA panels.
None of this can be allowed to obscure the single truth at the heart of this Bill. We have a once in a generation opportunity with the FS&M Bill. An opportunity to right size regulation, to enable international competitiveness without in any sense compromising on consumer protection. We have successfully demonstrated in the past how we can lead through innovative legislation and regulatory action, I offer the Fintech sandbox and CMA order on open banking as just two recent powerful examples.
Twenty-three years on from FSMA landing we must ensure that the current Bill reaches the Statute book in a state that will support our State, our business’, our consumers. It’s in everyone’s interest that Parliament, ultimately, that Government optimises this opportunity.