Additional regulator won't fix the convoluted regulatory system
The heightened focus on ensuring that regulation is effective is commendable.
But it also means focusing on its results through disciplined metrics and monitoring, and increasing results by reducing overlap and inconsistency.
While we agree overall with Gene Ludwig's recent assertion that regulation needs to be smarter and more effective, we disagree with the former comptroller of the currency's suggestion that another agency should be added to help accomplish that goal.
We have an alternative plan as outlined in our recent book supported by the Committee for Economic Development, "Smart Regulation: Changing Speed Bumps into Guardrails."
We are aligned with Ludwig’s premise that the nation must improve the quality and effectiveness of regulation, and move the discussion away from the unproductive battle over “too much” or “too little.” However, we disagree with Ludwig's suggestion of adding yet another institution to the already jumbled regulatory oversight mix.
There are two points that we believe should be addressed, and can be done on a bipartisan basis now:
First, and the easier of the two, is to strengthen the post review of existing regulation and future regulations by broadening the charters of the Office of Management and Budget and therefore, the Office of Information and Regulatory Affairs.
Regulations need to be reviewed with clear metrics to ensure that they are performing within an expected range. Meaning, doing more good than harm, and are still needed.
Second, from our perspective and in respectful disagreement with Ludwig, we believe that the creation of yet another regulatory review body — even one embedded in the private sector as suggested — would only add to the current overly fractionalized and balkanized American regulatory regime.
There exist at federal and state levels a multitude of regulators that overlap and therefore complicate our national economy. Many of these regulators are redundant and expensively duplicate each other's work at costs to individuals, institutions and taxpayers.
Even worse, they create inconsistency, confusion and delay, and make the world unnecessarily complicated. More important, regulators sometimes unintentionally block the safety and soundness that they were intended to promote.
A free-for-all of regulators creates a lack of clarity, accountability and crisp execution. It also makes regulators afraid that someone else might identify a possible area that they have missed and cause them to push for volume rather than concise focus.
In the financial services industry, when living wills reached into the tens of thousands of pages (with exhibits and addendums), it’s doubtful a single person has looked at the documents end to end.
We believe that both political parties and importantly, the American public, want the most effective and efficient regulation possible to provide positive outcomes for consumers and corporations. They don't care which silo, which regulatory jurisdiction or government member provides the oversight. What everyone cares about is effective, smart regulation.
It would be too big a challenge in the near term to reduce state involvement in financial services regulation. However, the Trump administration and Congress can put together a consolidation program for regulatory oversight.
Rather than creating yet another body to provide regulatory review, let's do the exact opposite and consolidate the myriad of federal offices into one entity with a clear mandate, ownership and accountability for financial regulatory issues.
By eliminating duplicate administration and coverage, this consolidation could create more effective and focused accountability. It would also increase clarity and consistency of regulatory requirements by eliminating regulatory arbitrage, at least at the federal level.
And lastly, eliminating duplication in the various federal financial regulatory offices would reduce overall cost to the taxpayer and free up wasted resources to make the centralized regulatory agency more effective.
Countries ranging from the U.K. to Singapore have increasingly unified their regulatory structures. It is in America’s public policy interest to have a disciplined focus, particularly as every nation struggles in how to best work with, incorporate and regulate emerging entities often referred to as “fintech” and areas in “regtech.”
As federal and some state regulators are creating "regulatory sandboxes," we want these pilots used for safe-harbor experimentation and not for throwing sand in the gears. Dueling policies, regulations or standards can cause visible harm. It can also make new technologies more expensive for everyone and slow down the nation’s progress.
Topics such as suitability, fairness and transparency are better understood when the discussion emerges from one voice, at one agency. That regulator should clearly understand who is accountable for oversight and implementation.
When there are multiple regulators, there is greater risk that responsibility and ownership will be less clear and will not be consistently administered or enforced.