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Commissioner Gallagher Calls Dodd-Frank Rules, Banking Agencies Threats to SEC’s Independence

The rules the SEC has had to write from the Dodd-Frank Act are interfering with the agency’s mission to promote efficient capital markets, according to Commissioner Daniel Gallagher. He wants to see less focus on some disclosure rules and efforts to lower financial market risk and more leeway for companies to tap into the markets to raise investment capital.

Many of the 100 rules the SEC had to write as a result of the 2010 Dodd-Frank Act are undermining the agency’s authority, according to SEC Commissioner Daniel Gallagher.

“Many, if not most, of the 100 mandates imposed upon the commission by the Dodd-Frank Act do not by any measure represent the best use of the commission’s time and resources,” Gallagher said, according to the transcript of an October 16, 2014, speech at Fordham Law School in New York. He was particularly critical of some environmental and political disclosures the law required, such as the rule related to minerals mined from the eastern Democratic Republic of Congo, where rebel forces fund their arms purchases by illicitly trading in gold, tin, and other minerals.

“Sociopolitical issues such as conflict minerals and extractive resources, while perhaps worthy of attention by the right entities, should not be part of the SEC’s agenda,” he said. “Rulemakings for such issues contribute neither to the maintenance of fair, orderly, and efficient markets, nor the facilitation of capital formation, nor investor protection.”

Gallagher also criticized the federal banking agencies for using the Dodd-Frank mandates to encroach on the SEC’s authority, particularly in the area of financial market risk. Many Dodd-Frank reforms, in order to limit the risk of another massive financial crisis like the mortgage market collapse of 2007-2008, push SEC, the Commodity Futures Trading Commission, and the federal banking agencies to monitor financial market risk and lessen it as much as possible.

In Gallagher’s view, this approach contradicts the basic purpose of the capital markets, which is to assume risk. The effort to stamp out risk will make it harder for investors to earn sufficient returns and for companies to raise investment capital.

“It would certainly be nice if the principal we invested in our capital markets was guaranteed to be as safe as the money we deposit in our passbook savings accounts but for the fact that the trade-off would be savings account-level returns on our investments,” Gallagher said. “If, like most Americans, you have been disappointed in our post-recession recovery, just wait until we have safe and sound, prudentially regulated capital markets promising us a guaranteed one half of one percent return.”