Originally appeared in MiFID Monitor
Following the debate about regulatory scrutiny of the credit derivatives space that has been ongoing over the last few months, Walter Lukken, acting chairman of the Commodity Futures Trading Commission (CFTC), has now indicated that he wants his own regulatory body and the Securities and Exchange Commission (SEC) to be replaced with three new regulatory agencies. He believes that these new agencies would be better equipped to deal with an increasingly complex financial system.
Lukken explained to a futures industry gathering in Chicago: “I believe the United States should scrap the current outdated regulatory framework in favour of an objectives-based regulatory system consisting of three primary authorities: a new systemic risk regulator, a new market integrity regulator and a new investor protection regulator.”
He believes this would represent “a bold new direction” for the global regulatory system and the new systemic risk regulator would have the responsibility of policing the entirety of the financial system for ‘black swan’ risks and would take preventive action in those cases.
This idea is similar to an overhaul proposal put forward in March by Treasury Secretary Henry Paulson and the Bush administration, which put the Federal Reserve at the top of the regulatory food chain. However, there have been some concerns raised in the market about concentrating too much power at the Fed.