SEC Chairman Cox: “If the SEC Did Not Exist, Congress Would Have to Create It”

This morning, SEC Chairman Christopher Cox provided lengthy testimony concerning the role of federal regulators to the House Committee on Oversight and Government Reform.

He delivered an impassioned statement about the need for the SEC to remain a strong, independent regulator and enforcer of the securities laws in the future, stating that “If the SEC did not exist, Congress would have to create it. The SEC’s mission is more important now than ever.”

Above all, the SEC is a law enforcement agency. Each year the SEC brings hundreds of civil enforcement actions for violation of the securities laws involving insider trading, accounting fraud, and providing false or misleading information about securities and the companies that issue them.

Some have tried to use the current credit crisis as an argument for replacing the SEC in a new system that relies more on supervision than on regulation and enforcement. That same recommendation was made before the credit crisis a year ago for a very different, and inconsistent, reason: that the U.S. was at risk of losing business to less-regulated markets. But what happened in the mortgage meltdown and the ensuing credit crisis demonstrates that where SEC regulation is strong and backed by statute, it is effective — and that where it relies on voluntary compliance or simply has no jurisdiction at all, it is not.

The lessons of the credit crisis all point to the need for strong and effective regulation, but without major holes and gaps. They also highlight the need for a strong SEC, which is unique in its arm’s-length independence from the institutions and persons it regulates.

If the SEC did not exist, Congress would have to create it. The SEC’s mission is more important now than ever.

Cox testified about several lessons he has learned from the from the current financial crisis, including that “voluntary regulation does not work.”  He also offered three lessons for legislators:

  • eliminate the current regulatory gap in which there is no statutory regulator for investment bank holding companies.
  • recognize each agency’s core competencies: He stated that “The mission of the SEC is investor protection, the maintenance of fair and orderly markets, and the facilitation of capital formation. In strengthening the role of the SEC, build on these traditional strengths — law enforcement, public company disclosure, accounting and auditing, and the regulation of exchanges, broker-dealers, investment advisers, and other securities entities and products. The vitally important function of securities regulation is best executed by specialists with decades of tradition and experience.”
  • ensure that securities regulation and enforcement remain fiercely independent.
  • He closed with a plug for the Enforcement Division, stating that “the SEC is first and foremost a law enforcement agency. During the market turmoil of the last several months, the professional men and women of the SEC have been working around the clock, seven days a week, to bring accountability to the marketplace and to see to it that the rules against fraud and unfair dealing are rigorously enforced.”

    Read Chairman Cox’s Testimony Concerning the Role of Federal Regulators: Lessons from the Credit Crisis for the Future of Regulation