Newsome said that while it is prudent for regulators to constantly review oversight procedures, it was too early to jump to any conclusions. “A situation of this magnitude deserves careful consideration before action is taken. One reason for my caution is that I believe we should make sure that we identify the true problem before we pursue remedies,” said Newsome in a speech to the American Bar Association’s Committee on Futures and Derivatives Instruments.
Passage of the CMFA gained the support of regulators and Congress. Both feared that outdated regulations were threatening US competitiveness in the OTC derivatives business. “I believe that any departure from the path of progress represented by this important piece of legislation should be approached with extreme caution,” warned Newsome.
He added that the prescriptive regulation trying to cover every eventuality was inferior to the CFMA’s principles-based approach combined with vigorous enforcement against wrongdoers.
Newsome’s concerns echoed those of Robert Pickel, chief executive of the International Swaps and Derivatives Association, a derivatives industry lobbying group. “Enron’s collapse raises legitimate concerns about their practices, including those relating to accounting and disclosure,” said Pickel in a January 29 letter to the Wall Street Journal. “[But] none of these avenues of inquiry lead to the conclusion that OTC derivatives, as a category of financial instrument, need specific additional regulation.”