Four years after crash, many new rules aren't yet in effect

Legislation Congress passed in 2010 to rein in financial firms has collided with lobbying efforts to slow down implementation.

By KEVIN G. HALL, McClatchy News Service

May 12, 2012 at 8:10PM
U.S. President Barack Obama signs the Dodd-Frank Wall Street Reform and Consumer Protection Act at the Ronald Reagan Building in Washington, D.C., Wednesday, July 21, 2010. Also pictured, from left, Vice President Joe Biden, Speaker of the House Nancy Pelosi (D-Calif.), Senate Majority Leader Harry Reid (D-Nev.), Rep. Maxine Waters (D-Calif.), Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.).
U.S. President Barack Obama signs the Dodd-Frank Wall Street Reform and Consumer Protection Act at the Ronald Reagan Building in Washington, D.C., Wednesday, July 21, 2010. Also pictured, from left, Vice President Joe Biden, Speaker of the House Nancy Pelosi (D-Calif.), Senate Majority Leader Harry Reid (D-Nev.), Rep. Maxine Waters (D-Calif.), Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.). (Mct - Mct/The Minnesota Star Tribune)

WASHINGTON - Almost four years after America's financial near-collapse, regulators are empowered to police financial markets as never before. Yet some of the most important rules to curb Wall Street's bad behavior have yet to take effect -- and could be watered down.

The 2010 revamp of financial regulation -- the Dodd-Frank Act -- attempted to do what much of the legislation in the 1930s did: Reshape the landscape. Dodd-Frank empowered the Securities and Exchange Commission and the Commodity Futures Trading Commission to regulate hedge funds, oil traders, credit ratings agencies, money market funds and a host of other Wall Street players that had enjoyed relaxed regulation.

Just last week, the revelation of a $2 billion trading loss at JPMorgan Chase added to a clamor for tighter regulation of financial firms.

But only about 33 percent of the new rules to rein in Wall Street are in force, according to the Davis Polk law firm, which specializes in regulation and puts out a monthly report on Dodd-Frank. And financial firms are aggressively trying to slow down the rulemaking process and roll back some of the rules.

One measure of progress is the number of cases being brought by the regulators' enforcement divisions. The CFTC filed 99 enforcement actions in the fiscal year ending Sept. 30, 2011. That was the highest tally ever, and a 74 percent increase from the prior year.

Similarly, the SEC, during the same period, brought 735 enforcement actions, its highest number ever.

But even as enforcement steps up, some of the biggest triggers of the financial crisis remain only half-addressed.

Hoping to return to a semblance of the precrisis status quo, financial lobbyists are stridently opposing efforts by bank regulators to prevent big Wall Street players from investing their own money in the same markets where they also invest money on behalf of their clients.

Wall Street trade associations also have sued to prevent the CFTC from imposing congressionally mandated limits on how much of the oil market can be controlled by financial speculators.

The suit on oil trading uses many of the same arguments successfully deployed by the U.S. Chamber of Commerce and the Business Roundtable against the SEC. A federal judge last July overturned a Dodd-Frank provision to promote more democratic boardroom elections, finding that the SEC did not do enough to measure the costs and benefits of its new rule.

"The regulatory framework has changed, but the attitude of financial services companies hasn't. It's been one constant pushback after another since Dodd-Frank was put on the books," complained Travis Plunkett, director of regulatory affairs for the Consumer Federation of America. "In some cases the securities and financial services industries have won rollbacks that pushed back to well before the financial crisis."

Plunkett was referring to Obama's April 5 signing of the JOBS Act, a bipartisan measured designed to support small businesses and start-ups. It undid some of the key provisions of the 2002 Sarbanes-Oxley Act, which was designed to shore up accounting practices after the collapse of energy trading giant Enron Corp.

The JOBS Act allowed companies to avoid registration with the SEC until they have 2,000 shareholders, instead of 500. Moreover, a big investment firm can appear as a single shareholder, even if it's holding shares for more than 5,000 clients.

The act also weakened investor protections, prompting SEC Chairman Mary Schapiro to issue warnings to lawmakers that were roundly ignored.

"I might say I'm disappointed, but I can't say I'm surprised," said Jack Coffee, a Columbia University law professor specializing in securities issues.

Coffee frets that Wall Street firms are succeeding in weakening rules and warned that the SEC too often goes after smaller cases and settles for too little.

There have been some notable large settlements, including $154 million in penalties against Wall Street titan JPMorgan Securities last June and $550 million in penalties in a 2010 settlement with Goldman Sachs.

Bart Chilton, a Democratic commissioner on the CFTC, also wants larger fines.

"That's important because we need to ensure that the fines that regulators issue aren't merely a cost of doing business for some of these large traders. I know that's the case for some of them," Chilton said. "I've seen it. It's hardly a slap on the wrist for some of these firms."

Financial players offer a different view of the post-Dodd-Frank world. They complain that too few rules have been finalized, and they deny obstruction, countering that they're merely acting in self-interest.

"I think it's a mistake for people to underestimate the magnitude of what Dodd-Frank is bringing in terms of a regulatory architecture over many parts of the financial industry," said Ken Bentsen, vice president of public policy for the Securities Industry and Financial Markets Association and a former Texas congressman. "We're exercising our statutory and constitutional right for comment on rules, which is entirely appropriate."

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KEVIN G. HALL, McClatchy News Service

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