Dodd-Frank was enacted to avoid the collapse of firms like MF Global, but according to a Commodities Futures Trading Commission chief, we don’t have the tools to stop it and won’t for some time.
The roughly 1,000-page Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was quickly enacted in the wake of the 2008 stock market meltdown.
It is designed to transform the way banks, broker-dealers, hedge funds, investment advisers, credit-rating agencies, accountants, public companies and other financial institutions operate.
But CFTC Commissioner Scott O’Malia says the government is now failing in the effort to make the financial marketplace, and the new rules governing it, understandable, open and enforceable.
“As I have stated again and again, the final rule-making process currently affords insufficient transparency to market participants and the public,” O’Malia claims.
The CFTC and the Securities and Exchange Commission are charged with translating Dodd-Frank into rules, but that has become a difficult job that is taking far longer than projected, industry observers say.
In a recent interview with The Post, O’Malia said the rule-making lacks “transparency” and that the CFTC has yet to provide any “comprehensive rule-making schedule.”
He also noted, “Without a firm schedule, it’s difficult to tell whether the rules are on schedule.”
He added that the regulators have missed a one-year deadline for implementation of the rules set by Congress when the bill became law in the summer of 2010.
Just how short Dodd-Frank has fallen in its goals was highlighted on Thursday, when former MF Global CEO Jon Corzine testified before the House agricultural committee that he did not know where the missing $1.2 billion from customers’ accounts was.
“I have grown increasingly frustrated with the rule-making process because there appears to be no specific plan or strategy for implementing these rules,” O’Malia said.
As the MF Global debacle unfolded, the CFTC scrambled to pass some pieces of rule-making, such as barring trading firms from investing client funds in overseas sovereign wealth funds, but that barn door was wide-open in MF Global’s case.
Another aspect that is slowing the process is that the regulated entities are lobbying for less oversight during the comment period, causing more deliberations by regulators.
“The entire industry is on hold, waiting for these rules,” notes John Jay, a securities industry analyst with Aite Group. “It’s the nature of the beast for these things to take a long time.” Jay also notes that lawmakers passed Dodd-Frank “in record time” and that this is a possible reason that rules implementation is delayed.
Jay adds the delay in Dodd-Frank implementation is difficult for various financial firms. “Market players — even those wishing to comply with the legislation — are in a state of limbo,” according to the Aite Group report.