Treasury Secretary Steven Mnuchin. (Photo: AP)

Treasury’s first report on regulatory reform, released Monday afternoon, recommends that Congress reduce fragmentation, overlap and duplication in federal regulation by, among other measures, consolidating regulators with “similar missions” and more clearly defining their regulatory mandates.

The report also argues that the Dodd-Frank Wall Street Reform and Consumer Protection Act has “increased the burden of regulatory compliance without adequate cost-benefit analysis” and that Dodd-Frank has “prolonged the moral hazard arising from regulations that could lead to taxpayer-funded bailouts.”

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Increased accountability for all regulators — including the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Consumer Financial Protection Bureau — should be achieved through “oversight by an appointed board or commission, or in the case of a director-led agency, appropriate control and oversight by the executive branch, including the right of removal at will by the president,” the report states.

The CFPB is a director-led agency, and Republicans have long been pushing to reduce the power of its director.

Treasury recommends that Congress expand the Financial Stability Oversight Council’s authority “to play a larger role in the coordination and direction of regulatory and supervisory policies,” including granting FSOC the authority to appoint a “lead regulator on any issue on which multiple agencies may have conflicting and overlapping regulatory jurisdiction.”

Sen. Elizabeth Warren, D-Mass., who helped set up the CFPB, chided the Treasury for recommending to weaken the agency.

“This report calls for radical changes that would make it easier for big banks to cheat their customers and spark another financial meltdown,” Warren said in a statement. “It comes as no surprise that Donald Trump and Steven Mnuchin — two men who were deeply involved in companies that cheated thousands of customers — would want to gut the agency that’s held cheaters accountable and returned more than $12 billion to consumers, but Democrats aren’t buying the Trump-Mnuchin financial deregulation plan.”

Treasury’s first report focuses on bank and credit union regulation.

Forthcoming reviews of the financial system will include:

  • Capital markets: debt, equity, commodities and derivatives markets, central clearing and other operational functions;
  • The asset management and insurance industries, and retail and institutional investment products and vehicles; and
  • Nonbank financial institutions, financial technology and financial innovation.

The first report also argues that better coordination on cybersecurity regulation is needed, and states that given the risk of fragmentation and overlap, Treasury recommends that “federal and state financial regulatory agencies establish processes for coordinating regulatory tools and examinations across subsectors.”

These efforts, the report states, can serve “as a foundation for additional necessary work,” with further coordination occurring on two fronts: Financial regulatory agencies should work to harmonize regulations, including using a common lexicon; and financial regulators should work to harmonize interpretations and implementation of specific rules and guidance around cybersecurity.

Additional work regarding cybersecurity could be aided by ongoing activities among financial regulators through the Financial and Banking Information Infrastructure Committee (FBIIC), the report states, which is a public sector body consisting of 18 federal agencies and state member organizations from across the financial regulatory community charged with coordinating efforts to improve the reliability and security of the financial sector infrastructure.

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