US unveils blueprint for modernised regulatory regime

The Treasury Secretary Henry Paulson yesterday (31 March) unveiled his long-awaited shake-up of US financial regulation.

The review, called a "Blueprint for a Modernised Financial Regulatory Structure", represents plans for the biggest overhaul of the US financial sector regulation since the 1930s.

It is aimed both at bringing the regulation of US financial markets into the 21st century and calming the nerves of the American public, following last year's credit crunch.

Paulson said the US needed a more flexible regulatory structure that was more adaptable than the current system. He added the new structure needed to be able to deal with "inevitable market disruptions" and protect investors and consumers.

"The challenge is to evolve to a more flexible, efficient and effective regulatory framework, and that is the purpose of this blueprint," Paulson said.

Heading Paulson's to do list was the call for greater powers for the US Federal Reserve. The Treasury Secretary argued the bank should be responsible for the regulation of a wider range of financial institutions, including hedge funds and insurance companies, and become the body responsible for overseeing market stability.

Paulson also called for the current Wall St regulator, the Securities and Exchange Commission, to be merged with the Commodity Futures Trading Commission.

The plans received a cautious welcome from lawyers in the US financial heartland of New York. One called Paulson's plans for light touch regulatory reform, "good for the markets, good for lawyers, good for everybody".

While the consensus was that it was too early to predict accurately, most lawyers also claimed that the plans represented a potential bonanza for firms with strong bank regulatory practices.

"There could be a lot of potential new work out there in bank regulation for law firms," said one New York banking partner. "There'll definitely be heavier regulation of investment banking practices. But the question is how much more widespread and what 'teeth' there will be for the regulators. What's been proposed so far is a bit vague on enforcement mechanics."

In his speech today, Paulson admitted that the changes, which will need legislative approval, would take "years to complete" and should not take place until after the current market difficulties were resolved.