Sen. Jeff Merkley (D-Ore.) hit out at the Securities and Exchange Commission for dawdling on a conflict of interest rule it was ordered to implement by the Dodd-Frank Act.
Merkley pressed SEC Chair Mary Jo White on Tuesday, asking about the state of the regulation before a Senate Bakning Committee oversight hearing.
“Here we are six years later,” he said, referring to the timing of Dodd-Frank’s passage. “We don’t even have a draft rule.”
White replied, calling the proposal “enormously important,” but said the matter was “much more complicated” than the agency initially believed. She said, for example, the rule could hinder government guarantees in the wholesale mortgage market via Fannie Mae and Freddie Mac.
“It has proven very, very difficult to draw the right lines,” White claimed.
Merkley, however, didn’t appear to find the argument credible.
“I don’t think anybody in America buys that this type of conflict of interest is too difficult,” he said. “The instructions have gone to the SEC. The SEC has failed the public on this issue.”
“I think it’s absolutely unacceptable,” Merkley added. “I would have said the same to your former chair, back in 2013, but here we are three years later.”
Section 621 of the bill ordered the SEC to create rules prohibiting a broker of “an asset backed security” from engaging in trades that would “involve or result in any material conflict of interest” to purchasers of that financial instrument. It already contains several exemptions, including those for “risk-mitigating hedging activities” in connection with underwriting.
The conflict of interest issue was brought to the fore of the policymaking world after the collapse of the housing and banking markets in 2008. It most notably received attention on Capitol Hill before the passage of Dodd-Frank, when former Sen. Carl Levin (D-Mich.) referenced emails sent by Goldman Sachs employees at an April 2010 Senate investigations committee hearing.
“Quoting a Goldman email: ‘boy that Timberwolf was one shitty deal,’” Levin said. “How much of that shitty deal did you sell?” he asked then-former Goldman partner Daniel Sparks.
“You knew it was a shitty deal and that’s what your e-mails show,” Levin continued. “How much of this shitty deal did you continue to sell to your clients?”
Merkley referenced Levin’s work on the matter—without directly referencing the high-profile cussing.
White’s take on rulemaking was also the subject of an intense barrage of criticism from Sen. Elizabeth Warren (D-Mass.).
A prior critic of White’s administration, Warren said the commission was spending too much time considering disclosure reform. She cited White’s statements critical of “information overload,” and questioned if any investors had actually complained about receiving too much disclosure from the SEC.
“I am frustrated that at your direction the SEC has voluntarily spent two years trying to address a problem that you have no evidence exists,” Warren said. “Instead of making up work to help giant corporations, the SEC should do its job, starting with the 20 required rules under Dodd-Frank that still aren’t fixed six years after the law was passed.”
In January, it was reported that the commission still had 31 Dodd-Frank rules left to finalize. Last week, the SEC knocked one off that list, when it finished a rule that will impose oversight and documentation requirements on derivatives traders.
