Five years after the Dodd-Frank Act was enacted, the creators of the law contemplate the wide-ranging legislation’s impact on the financial and banking industries. Also in recent GRC news: The SEC heads a civil probe into public companies potentially involved in the FIFA bribery scandal, and critics voice concerns regarding the SEC’s use of in-house judges in administrative cases.
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Creators of Dodd-Frank law reflect on its history
This week marked the fifth anniversary of the Dodd-Frank Act of 2010, the sweeping U.S. federal law that overhauled regulatory processes in the financial and banking sectors. There is continuing debate over the law’s merits: Advocates argue it makes banks less risky, while critics claim it hurt smaller banks and crippled the economy. The legislation’s sponsors, former Sen. Christopher Dodd and former Rep. Barney Frank, recently sat down with The Wall Street Journal to discuss its impact.
Dodd and Frank discussed what they consider the most significant impact the law made, and one aspect that they would change. Other points they touched on were why they believe the legislation has made the financial system safer; how confident they are about the death of “too big to fail” institutions; and the concerns about Dodd-Frank driving more financial activity into the less-supervised shadow banking system.
SEC leads new FIFA corruption investigation
The goal of the probe, which is in its early stages, is to investigate whether publicly traded companies involved in soccer contracts violated U.S. federal anti-bribery laws such as the Foreign Corrupt Practices Act (FCPA), and if enforcement action is needed. Although the FCPA largely applies to government corruption, the law contains corporate books and records keeping requirements that prohibit commercial bribery.
Critics challenge SEC’s in-house judicial process
The SEC itself is also under scrutiny, as the commission faces new criticism about its use of internal judges when it pursues cases rather than bringing them to Federal District Court. The passage of the Dodd-Frank Act first gave the SEC the option to file certain cases using its own administrative proceedings. Today, cases such as insider trading charges that in the past were typically pursued in a Federal District Court are more likely to be heard by the SEC during these in-house administrative proceedings.
Some detractors of the SEC’s administrative hearings — including Judge Jed Rakoff from the U.S. District Court for the Southern District of New York and the U.S. Chamber of Commerce — claim that they give the SEC an unfair advantage.
Peter J. Henning, a professor at Wayne State University Law School, argued in The New York Times that the debate goes further than that. There’s also the perception that the internal hearing process is in some ways flawed compared with federal court cases, and that it is inherently a “closed system in which the agency acts as both prosecutor and judge over the case,” Henning wrote. Some of these limitations, Henning said, include the following: Defendants are not granted pre-trial discovery rights and instead must rely on information gathered by the SEC; the initial decision in the proceedings is made by a judge employed by the SEC; and appeals must be heard by SEC commissioners before the cases can go to federal appeals court.
Henning proposes that the SEC compromise with critics of its administrative hearings by modestly expanding discovery rights. “The notion that the S.E.C. has gathered all the relevant information, and that a defendant cannot question witnesses in advance of a trial, goes against the view that each side should have the same opportunity to put on its case,” Henning wrote.