NEW FINANCIAL REGULATORY REFORM - THE DEVIL WILL BE IN THE DETAILS

Last week the Obama administration announced its financial regulation reform – the “White Paper.” There has been much discussion about the plan. Some critics argue that it calls for too much regulation, while others argue that the plan does not call for enough fundamental change in the financial systems. One thing is clear, while the proposal provides an outline of the Administration’s goals, there is a great deal of detail that will be left to Congress to figure out.

One of the tenants of the plan is the creation of the Consumer Financial Protection Agency (CFPA). The CFPA would be dedicated to protecting consumers in the financial products and service markets, except for investment products and services already regulated by the SEC or CFTC. The Administration proposes to give this agency broad power in rule making, supervising and enforcement. The stated goal of this agency would be to reduce the gaps in federal supervision, increase coordination between the states, and to promote the consistent regulation of similar products. The agency would have supervisory and enforcement authority over banking and nonbanking institutions.

The question that immediately rises is exactly what types of financial products and services will this Agency be responsible for monitoring? The White Paper specifically mentions the mortgage industry and consumer debt services, but there are a myriad of financial products available to the consumer. For instance while securities and commodities are regulated by the SEC and CFTC there are multiple exemptions in securities and commodities codes at the federal and state level. Will the sellers and issuers who work to ensure that these products qualify for exemptions now be subject to additional rules and regulations under the CFPA?

The Obama Administration’s Plan provides a broad outline for a new reform system, but it leaves much of the details to be filled in by the Hill– and we all know the devil is in the details. While we have a general idea of where financial regulatory reform may be headed there is a great deal more to be seen.