CFTC Sued Over Redundant Regulations and Lack of Cost-Benefit Analysis
The Chamber partnered with the Investment Company Institute (ICI) in a lawsuit filed this morning challenging new regulations by the CFTC subjecting mutual funds and other registered investment companies to a whole new layer of redundant regulation. The lawsuit has already received widespread coverage in outlets including the Wall Street Journal, Bloomberg News, Reuters, and MarketWatch.com.
In a press conference this afternoon to discuss the lawsuit, the Chamber’s David Hirschmann – president and CEO of the Center for Capital Markets Competitiveness – emphasized three principal concerns that compelled the Chamber to file the lawsuit. “The rule is important not just because we represent a wide array of investment companies directly impacted by the rule, but we also represent tens of thousands of companies whose workers rely on 401K retirement plans largely invested in mutual funds.”
Moreover, Hirschmann explained, the Chamber is a strong advocate for modern regulation. “One of the biggest problems of our regulatory structure was too many gaps and too many layers,” said Hirschmann. “Gaps are often exploited by fraudulent actors, and duplicative layers ad costs and regulatory uncertainty for honest market participants. This rule adds an inexplicably broad and redundant layer of regulation to one of the most regulated and transparent segments of the market.”
Chamber’s co-counsel in the case, Gene Scalia of Gibson, Dunn, and Crutcher LLP commented that it is “surprising” and even “extraordinary” that with all the other pressing regulatory matters placed on the CFTC’s plate by Congress, “the CFTC has decided in this case to rush forward with an overlapping redundant regulatory requirement on investment companies which already are so extensively regulated by the SEC … it is puzzling that they’ve decided to go forward.” Indeed, as the Chamber’s filing explained, “Investment companies and their advisors already are among the most highly regulated entities in the financial industry.” As Hirschmann explained to the WSJ, "mutual funds are not the dark corners of the financial markets.”
Not only is the regulation redundant, Hirschmann said, but another problem with the rule is that the CFTC failed to conduct a legally adequate cost-benefit analysis. The CFTC failed to clearly define the problem they were trying to address, much less explore all reasonable approaches, or tailor a final rule to solve the specific problem in the most cost efficient way. They did not even attempt to quantify costs or benefits. “That is just not good government. It’s very important to hold agencies accountable when they ignore their statutory obligations. More regulation is not better regulation, and more regulatory layers do not lead to clearer or more effective results. In fact, it was just over a year ago that President Obama wrote a WSJ op-ed stressing the importance of avoiding, “excessive, inconsistent and redundant regulation.” The Chamber could not agree more with the President that regulation for regulation’s sake “stifles job creation and makes our economy less competitive.”
Scalia pointed out at the press conference that “by law the CFTC must consider the effects of what it’s doing on efficiency, on competitiveness, on sound risk management practices, and on the public interest. The commission failed to conduct that analysis.” Scalia continued, “cost-benefit analysis has for decades been an accepted part of environmental regulation, of occupational safety and health regulation, I can’t think of any place where it ought to be more natural and more at home than in the field of regulation that concerns finance. It ought to be perfectly natural, and in some respects easier, to assess the economic impacts of actions that ultimately are being taken for their economic impacts.”
The case is ICI and Chamber of Commerce v. CFTC. You can find out more about the lawsuit at the website for the Chamber’s public policy law firm, the National Chamber Litigation Center, which is handling the case.