The current U.S. financial regulatory system has relied on a fragmentedand complex arrangement of federal and state regulators—put into placeover the past 150 years—that has not kept pace with major developmentsin financial markets and products in recent decades. Today, almost adozen federal regulatory agencies, numerous self-regulatory organizations,and hundreds of state financial regulatory agencies share responsibility foroverseeing the financial services industry. As the nation finds itself in themidst of one of the worst financial crises ever, it has become apparent thatthe regulatory system is ill-suited to meet the nation’s needs in the 21stcentury.
Several key changes in financial markets and products in recent decadeshave highlighted significant limitations and gaps in the existing regulatorysystem.
First, regulators have struggled, and often failed, to mitigate thesystemic risks posed by large and interconnected financialconglomerates and to ensure they adequately manage their risks.
Second, regulators have had to address problems in financial marketsresulting from the activities of large and sometimes less-regulatedmarket participants—such as nonbank mortgage lenders, hedge funds,and credit rating agencies—some of which play significant roles intoday’s financial markets.
Third, the increasing prevalence of new and more complex investment products has challenged regulators and investors, and consumers havefaced difficulty understanding new and increasingly complex retailmortgage and credit products.
Fourth, standard setters for accounting and financial regulators havefaced growing challenges in ensuring that accounting and auditstandards appropriately respond to financial market developments, andin addressing challenges arising from the global convergence of accounting and auditing standards.
Finally, as financial markets have become increasingly global, thecurrent fragmented U.S. regulatory structure has complicated someefforts to coordinate internationally with other regulators.These significant developments have outpaced a fragmented and outdatedregulatory structure, and, as a result, significant reforms to the U.S.regulatory system are critically and urgently needed. The current systemhas significant weaknesses that, if not addressed, will continue to expose
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