When it comes to policymaking and regulation, it's easy to think in shorthand. We're all familiar with the sound bites: "Government is the problem." "Government is the solution." "Washington is broken."
But this shorthand is neither accurate nor especially helpful. Indeed, in my view, both anecdotal and statistical evidence suggest that Americans' attitudes about government and regulation are quite complex. Understanding the implications of this complexity could help to guide us as we continually strive to rethink and improve our approach to regulation.
A number of nuanced opinions on regulation were on display at a recent gathering of Women in Capital Markets an initiative that brings together a group of senior leaders in finance, business, media, academia, and policy for a broad discussion on the critical issues facing U.S. and global capital markets. These leaders reached a clear consensus that the balance between regulation and economic growth can be thrown off when regulatory requirements become overly complicated or contradictory. Some voiced strong concerns that the current regulatory environment shows signs of this imbalance. "Regulators are much more involved and intrusive," said one participant. "Financial companies are much more risk-averse than they used to be, and innovation is more difficult."
Another participant agreed, noting that at her company, the time required to develop new offerings for customers has ballooned. "Where they once could get a product out in six months, now it might take 18 months or longer to get regulatory approval," she said.
Its worth noting that the women at this gathering were not out to bash regulators. To the contrary, many of the participants are former regulators themselves. The key role of regulation in healthy capital markets was taken as a given at the outset of the discussion.
One guest made a striking point on this subject. "It's always a mistake to talk about regulation in a monolithic way," she said, pointing out that most private sector interests do not reflexively support deregulation. Indeed, companies and trade groups often vigorously defend existing rules. "What they want is certainty," she said.
In short, in the view of these leaders, regulation is not the problem but it can certainly pose a problem.
This is a view shared by most investors. As a recent survey of over 1,000 investors by the Center for Audit Quality revealed, regulation is important to them, but they don't want the government to overdo it.
Fortunately, I see instances in Washington where regulators are highly attuned to the need for efficiency. For example, the Securities and Exchange Commission has since last January been active on the issue of fundamentally reforming corporate financial disclosure. At the outset of these efforts, the bugaboo was "disclosure overload." But the emphasis has since changed. Regulators astutely recognized that while investors often want less information, sometimes they want more. "Disclosure effectiveness" is the new goal.
How can we promote a regulatory focus on effective rules across the policy landscape? My colleagues at the Women in Capital Markets threw out several good ideas at our recent event. Many of these ideas focused on improving communication and interaction between the government and key financial decision-makers. Participants noted that the SEC has made excellent use of roundtables to gather industry input both before and after regulatory action. More roundtables of this nature, especially those that facilitate a productive dialogue, could be used to get comments on rules that have been in place for a set period so that regulators can incorporate industry feedback into any future revisions.
There are doubtless many more ways to enhance effectiveness in policymaking. But a simple change in mindset moving away from monolithic thinking may help create certainty, unlock innovation, and make empty sound bites obsolete.
A former deputy director at the SEC and senior vice president at Bank of America, Cindy Fornelli has served as the executive director of the Center for Audit Quality since its founding in 2007.