Time and Money: Two Simple Ways the SEC and CFTC Could Save Both

While consensus is hard to find in Washington, from time to time, policymakers are able to develop common-sense solutions to real problems.

Right now, regulators at the Securities and Exchange Commission and the Commodity Futures Trading Commission are trying to do just that. Together, they are making a concerted effort to fix a redundant regulatory structure and promote harmonization between their agencies. Their efforts could save taxpayers and investment advisers that are registered with both entities hundreds of man hours and millions of dollars.

Today, advisers and operators of thousands of funds that trade securities and commodity derivatives are registered with both the CFTC and SEC, complying with a wide range of duplicative and overlapping regulatory requirements. The rules cover areas such as record keeping, disaster recovery, marketing materials and cybersecurity, to name a few.

In each case, firms provide both regulators with similar, if not identical, information through a variety of forms and requests. The result: a laborious, time-consuming and expensive process.

As their efforts intensify, regulators should consider establishing a harmonized regulatory approach or “primary regulator safe harbor,” where a firm would remain registered with both agencies but receive substituted compliance from one regulator for complying with the similar rule set of the regulator established as the primary regulator.

A simple bright line test — whether a firm’s assets under management consist of a majority of investments in securities or commodity derivatives — would establish the primary regulator. Such a framework would assist the SEC and CFTC with prioritizing and maximizing their limited resources.

Importantly, each agency would retain full authority to obtain any records or information it requires for oversight of registered firms. Firms would continue to be subject to the antifraud and trading regulations of both agencies, and their trading conduct would continue to be monitored by the respective exchange regulatory organizations.

Along the same lines, the Managed Funds Association has recommended ways to streamline and harmonize the forms that regulators require for systemic risk reporting. In many cases, market participants must provide answers to the same questions using different methodologies and often different definitions for the same term. A single, streamlined form would allow regulators to monitor systemic risk using data reported in a consistent manner, improve the quality of systemic risk analysis across the industry, and reduce the expenses and other resources required to comply with both agencies.

We believe this proposal is in line with recommendations contained in the U.S. Treasury’s recent report on asset management and insurance, which stated that “… given the immense data reporting requirements added over the past few years, the SEC, the CFTC, SROs, and other regulators should work together to rationalize and harmonize the reporting regimes.”

Both of these common-sense solutions would help conserve valuable government resources, reduce waste, promote good governance and enhance regulatory efficiency and effectiveness — all while reducing costs and burdens imposed on investors.  

Even in fractured government, these are exactly the types of consensus measures that can be effectively implemented when policymakers work together as the CFTC and SEC appear to be doing now.


Richard H. Baker is president and chief executive officer of Managed Funds Association, which represents the global alternative investment industry and its investors by advocating for public policies that foster efficient, transparent and fair capital markets.

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