By Bart Chilton
McClatchy-Tribune News Service
The fiercest fireworks may not have come yesterday, but later this month. Like our independence struggle, they may develop on the other side of the Atlantic.
It’s been five years since the economy tanked, yet U.S. regulators still haven’t implemented essential financial reform protections. One key controversial section requires rules for firms operating outside the United States. It hasn’t taken effect, but could this month, setting up a global regulatory confrontation.
Like the Internet, financial markets are interconnected and international. The problem exists when a firm of one nation loses money in another nation and risk returns home. We saw that with JP Morgan last year as a trader termed “The London Whale” lost billions. If risk comes back and impacts a small company, perhaps that isn’t a big deal. Conversely, what if the risk is huge? What if it has a direct and significant impact on our commerce and economy? (Think 2008 and the big bank bailout from a lot of trading that took place by U.S. firms overseas.)
Consequently, U.S. regulators are about to implement rules for U.S. firms operating outside the States. That’s where the potential fireworks exist. In Europe, for example, where they are close to us but lagging behind in their rule writing, some suggest that we wait. Let’s all essentially jump in the pool together. How dare U.S. regulators try to tell U.S. firms what to do in another nation.
On the other hand, if we don’t move now to implement rules, we’ll be unprotected.
The circumstance is emerging for global regulatory conflict, but it doesn’t have to be so. Like most things in life, the answer is balance. The U.S. should put our rules in place this month, but allow for phased-in effective dates that are cognizant of European and other global regulator efforts.
After all, the best long-term approach to us all being better protected from financial fiascos is to have a global network of closely harmonized rules. This can be done if U.S. regulators seize the day and adopt a sensible approach, rather than simply going forward without appropriate regard for the rest of the world.
Bart Chilton is a commissioner on the U.S. Commodity Futures Trading Commission and the author of “Ponzimonium: How Scam Artists Are Ripping Off America.” Distributed by McClatchy-Tribune Information Services.