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Cox Says Regulation R Should be Adopted by July

SEC Chairman Christopher Cox said his 17 years in Congress helped when he inherited the project of adopting rules to implement the Gramm-Leach-Bliley Act. Cox's House committee held extensive hearings and the conference on the final bill was one of the largest ever because so many committees were involved, he explained. He believes the end result was a milestone in the history of U.S. financial regulation. In recent remarks to the Federal Reserve Bank of Chicago, Cox described the SEC's disappointing record in failing to adopt the implementing rules during the eight years since the enactment of the legislation.

The Gramm-Leach-Bliley Act not only formalized the transformation in the separation of financial services, but also rationalized it, according to Cox. Congress recognized how difficult the transformation would be, he added, so it provided an 18-month deadline, which ended in May 2001. The SEC adopted rules affecting dealers that went into effect in September 2003, but has extended the exception from the definition of broker up through July 2007.

The modernization of financial services is at stake, according to Cox. He reported good progress since he has taken the lead and said the SEC should have final action on proposed Regulation R by the July deadline. Final action is important to investors, to capital formation and to the nation's competitiveness in the global economy, he said.

Cox also discussed his support for the use of interactive data in SEC filings, which is already extensively used elsewhere in the financial services industry. The SEC is working to see that every public company uses interactive data in its reports, he said. Interactive data will reduce the cost of regulation and improve the quality of the product, he explained. In the increasingly global world of finance, interactive data will sharpen the financial service industry's competitive edge.

Global Initiatives

In remarks to the American Chamber of Commerce in April, Cox talked about differences in national systems of regulation and the potential for mutual recognition. Cox noted that the differences in various markets may justify differences in regulation, such as the ownership base of public companies. Differences in market structure will create different problems, he said, and the national regulator must determine how to address them. If regulators do not recognize that legitimate differences can exist, then mutual recognition will be more difficult, in his view.

Some regulations are based on legislative mandates that cannot be changed by regulators, Cox added. In other cases, certain regulations may be redundant or may have been created to resolve problems that no longer exist. Cox said the elimination of rules that have ceased to serve their original purpose would benefit everyone. If certain rules differ from other jurisdictions in form rather than substance, investors and businesses would also benefit if those rules were conformed to what counterpart regulators are doing, in his view.

Regulations need not all be the same, according to Cox, but regulators must become comfortable in understanding the differences. In some cases, convergence and harmonization are the right approach, he said, while in others, a different approach works best. Sometimes, investors should be offered a choice based on full disclosure, he said.

While much of the debate has focused on integrating accounting standards, Cox said the staff has even begun to talk about the possibility of non-U.S. broker-dealers and exchanges applying for exemptions from SEC registration. He acknowledged that some of the old ways of doing things have grown obsolete and encouraged a dialogue about ways to lower costs while increasing opportunities for investors. The SEC will host a roundtable this summer to further that dialogue. Cox said that regulators owe it to those whose interests they protect to bring the markets into the 21st Century.

Jacquelyn Lumb