The Tyranny of the Multitude is a Multiplied Tyranny: Is the United States Financial Regulatory Structure Undermining U.S. Competitiveness?

Abstract

If imitation is the highest form of flattery, the United States may feel very flattered by the fact that other nations have modeled many of their regulations governing financial services (securities, banking, and insurance) on U.S. regulations. In fact, the United States government and the American Bar Association have been encouraging other nations to copy the way that the United States regulates financial services for over two decades. Some nations have not only adopted laws and regulations similar to U.S. financial regulations but have enacted legal reforms to permit lawsuits similar to U.S. class actions.

No other nation, however, has sought to copy the federal and state regulatory structure that the United States uses to supervise and regulate financial services. The United States has over 115 federal and state agencies involved in regulating some aspect of financial services and Congress is contemplating adding new agencies to the list.

In fact, the rest of the world is moving in the other direction. Over the past decade fifty nations have consolidated their financial services regulators and sixteen nations, including the United Kingdom, Germany and Japan, have created single financial services agencies. When consolidating their regulators, these nations have streamlined the regulatory procedures and eliminated outdated or duplicative regulations. For example, the UK Financial Services Authority reduced the listing rules for new securities by 40 percent. As a result, these streamlined regulatory structures have given these countries a competitive advantage over the United States.

This article explores how the United States regulatory structure is undermining U.S. competitiveness in the area of financial services. This article examines why the U.S. regulatory structure hinders U.S. competitiveness more than any particular law, such as the Sarbanes-Oxley Act. The article also discusses what actions federal and state regulators could take to minimize the problems created by the current structure and to move towards a more consolidated or integrated regulatory framework.

Keywords: financial services, financial regulation, U.S. competitiveness, securities, banking, insurance

JEL Classification: F30, G10, G15, G18, G20, G21, G22, G24, G28