Brooklyn Law School’s Dennis J. Block Center for the Study of International Business Law (IBL) hosted its first Breakfast Roundtable of the academic year on October 9, 2009. Elisse B. Walter, Commissioner of the U.S. Securities and Exchange Commission, presented an “Update of International Initiatives,” identifying recent SEC efforts to ensure investor protection in light of the increasing global nature of financial markets. Walter was introduced by Roberta Karmel, Brooklyn Law School’s Centennial Professor of Law and former SEC Commissioner who served when Walter was an SEC staff member. The audience included alumni, academicians, attorneys, reporters and BLS International Business Law Fellows.
Walter’s speech, which covered a variety of cooperative efforts among international regulators, focused on two closely related concerns: the need to increase the communications of international organizations and the necessity to shrink the information gap on certain financial markets. Walter made clear that these efforts must be made through multinational collaboration given the international scope of today's financial markets.
For nearly two decades, the SEC’s international efforts were treated as a separate matter, but times have changed. “Everything the Commission considers today must be placed in its global context. In adopting each and every rule, or otherwise taking policy positions, the Commission must go beyond domestic boundaries in considering the impacts of its action, intended and unintended.” Walter considers global forums -- organizations in which regulators from around the world meet -- of the highest importance to financial regulation. These organizations include: International Organization of Securities (IOSCO), Senior Supervisor’s Group (SSG), Basel Committee on Banking Supervision (Basel Committee), Joint Forum, Council of Securities Regulators of the Americas (COSRA), and Financial Securities Board (FSB).
Walter highlighted several international cooperative efforts between regulatory commissions to “raise the standards of cross-border enforcement cooperation.” For example, 20 years after the SEC entered into its first bilateral memorandum of understanding (MoU) to share information in securities enforcement issues with the United Kingdom, bilateral agreements have been made with 20 jurisdictions. Those agreements, in turn, spurred the creation of the IOSCO multilateral memorandum of understanding (MMoU) in 2002. “Since then, 55 jurisdictions have implemented the principles for cross-border enforcement cooperation” contained in that document and 27 more have committed to do so, significantly improving the capability of the SEC to pursue criminals across borders.
Walter also spoke about specific financial market firms including hedge funds. She acknowledged that hedge funds play an important role in financial markets around the world, and can contribute in positive ways to investor portfolios. But hedge funds are also “a powerful illustration of problematic regulatory gaps. . . I like to say, 'We can’t regulate what we can’t see.' And today there’s a lot we can’t see. And we can’t even evaluate what we can’t see.” The SEC lacks basic data about hedge funds and does not have the regulatory means to get it. Neither hedge funds nor advisers are required to register with the Commission, and therefore are not subject to SEC periodic examinations, making it difficult for the SEC to identify misconduct. Walter outlined a number of proposals to provide the SEC with the means to collect and regulate hedge funds, including the requirement for hedge fund managers to register as investment advisers and regulating hedge funds as dealers. Walter sees these changes as some of the fundamental moves needed to give the SEC basic data to do its job properly.
At the conclusion of her speech, Walter fielded a few questions from the audience. One person questioned whether new regulations will produce positive changes in the economy. He commented on the fact that each financial crisis spurs new regulations which inevitably fail to prevent greed and imprudence. In response, Walter said that the most recent financial crisis has made both those in the business and regulatory world aware, "that nothing is inconceivable. . . [We learned to] expand our horizons in terms of thinking of possibilities, and never say, 'Oh, we don’t have to worry about that, 'cause that can't happen.' Whatever it is, it can, and it may." Given that financial markets are increasingly international in scope, improved multinational cooperation is necessary to regulate markets, protect investors, and better ensure global economic security.
By An Duong ’12
Read the complete text of SEC Commissioner Walter's speech.