N.Y. Panel Urges London-Style Financial Services Regulation

By Dan Seymour | January 23, 2008

A commission helping redraft the regulatory framework for New York’s finance industry is considering placing greater emphasis on “principles” than on strictly defined rules, Gov. Eliot Spitzer said.

Regulations based on broad guidelines — such as “observe proper standards of market conduct,” and “maintain adequate financial resources” — could inject some flexibility into the arcane and Byzantine rules governing the industry now, Spitzer said.

While the governor said the move to revamp the state’s regulatory system began long before last year’s mortgage crisis reached a boiling point, he said the turmoil in financial markets underscores the need to modernize the system.

“There is also a premium to restoring the credibility to a regulatory framework that I think a lot of people look at and say, ‘You have failed,”‘ he said.

Spitzer established the commission by executive order in May to issue recommendations to the state for regulatory change, aiming for regu lations that can keep markets running smoothly and protect investors and consumers.

Composed of more than 40 members including bank executives, lawyers, regulators and consumer advocates, the Commission to Modernize the Regulation of Financial Services held its first meeting last Friday at New York University.

A principle-based regulatory framework would more closely resemble that used in London. Spitzer said such a system would serve as a foundation for interpreting existing laws, and urge regulators to concentrate on outcomes instead of the process.

Much of the regulatory structure overseeing the industry in New York today is a holdover from an era in which walls separated different types of finance companies, such as commercial banks, investment banks and insurers.

After those walls were broken down, the “silos” that sprouted to oversee each type of industry remained. As a result, many companies are regulated by a number of different bodies, and sometimes different companies selling the same product are bound by different sets of rules.

Spitzer declined to discuss any timetable for the implementation of changes.

The commission’s members include the chief executives of investments banks Goldman Sachs, Morgan Stanley and Merrill Lynch; insurers MetLife and AIG; and the New York Stock Exchange and the Nasdaq.

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