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From Securities Regulation Daily, March 5, 2013

Chamber of Commerce Issues Legislative Agenda for Dodd-Frank Act Corrections

By Jim Hamilton, J.D., LL.M

Against the backdrop of possible Dodd-Frank corrections legislation in the 113th Congress, the U.S. Chamber of Commerce has issued recommendations for legislative changes to the Act. Among other things, the Chamber asks Congress to repeal the Volcker Rule, Section 619 of Dodd-Frank, and replace it with higher capital requirements for financial services firms that engage in proprietary trading. Similarly, the Chamber seeks repeal of the conflict minerals and resource extraction disclosure provisions of Dodd-Frank. SEC regulations implementing those provisions are currently under challenge in the DC Circuit. The Chamber said that the regulations place costly burdens on U.S. businesses while failing to achieve foreign policy objectives. Instead, the Chamber suggested that Congress empower an appropriate foreign policy apparatus to resolve international conflicts.

Derivatives. Regarding the derivatives provisions of Dodd-Frank, the Chamber recommends a codified exemption for non-financial end-users from the margin requirements of Title VII, as well as legislation ensuring that purely internal, inter-affiliate derivatives transactions are exempt from clearing, margin, and other requirements more appropriately applied to market-facing swaps. Congress should also clarify that non-financial companies that use centralized treasury units to hedge risk will be eligible for the end-user clearing exception.

Recently, the House Agriculture Committee approved the Inter-Affiliate Swap Clarification Act (H.R. 677), which would ensure that derivatives transactions between affiliates in a single corporate group are not regulated as swaps under the Dodd-Frank Act. The legislation would prevent internal, inter-affiliate swaps from being subject to costly and duplicative regulation. The Committee also approved the Business Risk Mitigation and Price Stabilization Act (H.R. 634), which codifies an exemption for non-financial end users that use derivatives in their commercial businesses from the margin requirements of Dodd-Frank.

Cross-Border Regulation. The Chamber also asks Congress to limit the extraterritorial reach of domestic derivatives regulation to ensure U.S. dealers are not disadvantaged overseas and to ensure that Main Street non-financial companies’ cross-border counterparty relationships are not undermined by overlapping regulation. More broadly on that theme, Congress should ensure greater regulatory coordination on key areas of financial regulation, such as derivatives and systemic risk to ensure a level playing field and globally compatible approaches to regulation when appropriate. Legislation should also end efforts to apply domestic regulations extraterritorially and create mechanisms to ensure effective coordination among international regulators to resolve cross-border issues.

Financial Stability Oversight Council. The Financial Stability Oversight Council should be reformed so that the views of its constituent agencies, such as the SEC and CFTC, and not the Chairs of those agencies sitting as individuals, are represented on the Council. Legislation should create what the Chamber called a "regulatory conflict window’’ at the FSOC with the goal of streamlining and ending duplicative regulatory initiatives and structures and harmonizing conflicting regulations among agencies.

Whistleblower Regulations. The Chamber also calls for changes to the SEC and CFTC whistleblower programs to make any wrongdoer convicted of a crime ineligible for an award. In addition, the whistleblower programs should be changed to provide consistency with the compliance programs mandated by the Sarbanes-Oxley Act to require internal reporting of the alleged misconduct, either before or simultaneously reporting the information to the Commissions.

Reform of the SEC. On a much broader note outside the confines of the Dodd-Frank Act, the Chamber asks Congress to develop a bold and clear plan on how to make rulemaking, supervision, inspections, and enforcement operations within the SEC more effective. The Chamber recommends the appointment of a deputy SEC chairman to develop and implement a transformational reform plan to break down silos, develop priorities for agency action, and instill managerial accountability and discipline. Increased SEC funding and resources could be linked to timely and clear progress towards achieving the plan. Procedures should be in place to ensure that necessary technology improvements can be effectively incorporated in furthering the SEC’s mission.

MainStory: TopStory DoddFrankAct

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