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Regulators, capital market participants agree on the need for more interagency cooperation

For those watching capital markets, the largest issuesfacing the regulatory environment have less to do with what the regulations areand more to do with who is imposing them. At the Securities Industry andFinancial Markets Association's Capital Markets Conference Sept. 27, the focusof industry participants was fixated specifically on how there are too manyagencies doing redundant work.

Among those who agreed: regulators themselves.

"There are coordination challenges — no question aboutit," Mary Jo White, chair of the SEC said. "It's incumbent upon eachof the agencies to work hard to minimize those."

As the implementation of Dodd-Frank regulations continue,regulatory agencies have had a tough time defining jurisdictionalresponsibility in rules with overlapping interests. White referenced theparallel rulemaking between the SEC and the Department of Labor regardingconflicts of interest in retirement investment advice, work that still remainsunfinished.

In an interview, Justin Schardin of the Bipartisan PolicyCenter said the current regulatory structure has a "95% overlap" ofregulatory functions in which a given firm will report to four or five agenciesin addition to state agencies. Schardin suggested having the federal agencieswork together as a "team," pooling information and data that stateagencies could access as well. A Bipartisan Policy Center study directed bySchardin also suggested Congress — and if not, the Financial StabilityOversight Council — designate a lead agency for interagency rulemakings.

"If you can't actually consolidate these agencies, youcan consolidate their efforts more. There's so much overlap between bankprudential agencies and capital markets agencies where they're doing the samestuff," Schardin said.

The efficiency of government agencies can vary depending onexactly what's being regulated. White mentioned the SEC's work with the CFTCwhen rules were being made for the regulation of over-the-counter derivativesmarkets. CFTC chairman Timothy Massad, also in attendance at the SIFMA event,said he has seen overall interagency cooperation improve in his time as chair.

"There's been a huge increase, I think, in the dialogueand coordination among government agencies on cyber issues," Massad said.

But in a panel on the future of regulation, Donald Kohn,senior fellow at the Brookings Institution, said that, at a high-level,interagency effectiveness is particularly weak in the cost-benefit analysis ofproposed rules.

"Very few of them, if any, have a financial stabilitymandate built into their legislation," Kohn said. "The balkanizationof the U.S. regulatory system impedes cost-benefits."

Kohn and other panelists argued that in trying to fulfilltheir own mandates, regulators have failed to approach the economy with aholistic understanding of proper rulemaking. The FSOC would be the closesteffort at bringing cohesion to the agencies, but Kohn said that's "notenough."

For its part, the FSOC agrees that it could do more.

"It's incumbent upon FSOC to meet, to shareinformation, to discuss situations on the ground through the best of all theregulators' knowledge and understanding," FSOC deputy assistant secretaryJonah Crane said.