The Government Finance Officers Association could become the first trade association to back congressional calls for federal regulation of the estimated $12 trillion derivatives business.
In a vote scheduled for this morning at its annual meeting in Minneapolis, the nearly 13,000-member group, which represents public finance officials from all sectors of government, plans to vote on a proposed policy recommendations that supports federal oversight.
The recommendation is mainly aimed at insurance companies and securities firms. If it is passed, the finance officers association will call for all financial institutions to abide by the reporting and disclosure requirements now demanded only of banks in some cases.
Same Game, Different Rules
"One of the things this does is highlight there are different regulatory frameworks," said Cathy Spain, the trade group's director of federal liason. "The bank regulators have been more aggressive," she said, so the proposal would bring other institutions up to the same standards.
Currently, there are no federal regulations regarding derivatives activities by affiliates of insurance companies and securities firms. Closing these gaps, the proposal said, would ensure that potential problems be identified and addressed in a timely manner.
The proposal would require all brokers and dealers in derivatives to assure buyers of the suitability of the products, or that the transactions are appropriate for the state or local government.
Stiffer Requirements Asked
The proposal also asks the Financial Accounting Standards Board to accelerate its standard-setting process for derivatives. As well, the recommendation urges adoption of federal regulations that demand a minimum capital requirement for brokers and dealers to provide protection from unexpected losses.
Currently, only banks have these capital requirements, the association said.
The executive board passed the statement Sunday, and the full group is expected to approve the measure today, Ms. Spain said.
Because some municipalities have already lost a great deal of money through derivatives, she said, little resistanceis expected. Specifically, she said, some Ohio towns four months ago reported losses on derivatives.