United States: House Financial Services Subcommittee Hears Criticism Of Financial Stability Board's Regulatory Approach (With Delta Strategy Group Summary)

The Monetary Policy and Trade Subcommittee of the House Financial Services Committee examined the regulatory approach taken by the Financial Stability Board ("FSB") and its "implications for U.S. growth and competitiveness." The hearing focused on whether the FSB "encourages a 'one-size-fits-all' approach to regulation which may affect the "financial service industry's ability to perform effectively for customers, compete internationally and contribute to a sound financial system."

Testimony from the hearing included:

• Republican concern over a lack of transparency by the FSB, and whether the codification of certain measures would help to ensure accountability.
• An Investment Company Institute assertion that if mutual funds companies are allowed to be designated as systemically important financial institutions ("SIFIs"), then funds that are so designated will fall under Fed supervision, perform worse than before, and become less competitive.
• Proposals to allow more input from the financial industry and the public (i.e., through notices and comments) before U.S. officials agree to meet with international rulemaking bodies.

Other highlights from the hearing included the following:

• Subcommittee Chair Bill Huizenga (R-MI) voiced his concern about the FSB's "arbitrary decision-making process and its role as a shadow regulator."
• Subcommittee Ranking Member Gwen Moore (D-WI) asserted that "regulators must understand that the FSB's decisions are not binding in the United States."
• Investment Company Institute President and CEO Paul Schott Stevens argued that the FSB is predisposed to consider virtually all financial activity conducted outside of banks to be "shadow banking" and, therefore, to be regulated inadequately because it is not subject to bank standards and supervision.
• SIFMA Managing Director and Associate General Counsel Carter McDowell maintained that the more U.S. regulators base their rules on internationally adopted standards, the likelier U.S. financial institutions are to be subject to rules that are ill-suited for U.S. financial markets or the broader economy.

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