December 3, 2012
Today, Representative Michael E. Capuano, Ranking Member of the House Financial Services Committee’s Subcommittee on Oversight and Investigations, released an Addendum [PDF] to the majority staff report on the collapse of MF Global. Democratic Members of the Subcommittee joined Rep. Capuano in releasing the Addendum. The majority staff report was released by Chairman Randy Neugebauer on November 15, 2012.
“While I agree with a number of the majority staff report’s observations and recommendations, others require additional commentary which is why an Addendum is necessary,” stated Rep. Capuano.
Ranking Member Capuano shares the majority staff report’s praise of the National Futures Association and the U.S. Commodity Futures Trading Commission (CFTC) for moving to ban the Alternative Method. This accounting practice contributed to the loss of MF Global customer funds. The Democratic Addendum encourages regulators to determine if adequate protection for customer funds is in place and to continue studying ways to further protect these funds. It also urges regulators to “strengthen existing disclosure requirements so customers will better recognize and understand the risks they face.”
Ranking Member Capuano’s Addendum also supports the recommendation to merge the U.S. Securities and Exchange Commission (SEC) and the CFTC. He recently joined Ranking Member Barney Frank in filing the Markets and Trading Reorganization Act to accomplish this merger as well as to provide the newly formed entity with an independent funding stream. The Democratic Addendum also agrees with the report’s conclusion that federal regulators lacked sufficient coordination with one another but notes that the self-regulatory agencies, which directly supervised and examined MF Global, share some of this accountability.
Ranking Member Capuano’s Addendum concurs with the report’s recognition of the Financial Accounting Standards Bureau and Financial Industry Regulatory Authority for changing the treatment of repo-to-maturity transactions so that they are listed as secured borrowing instead of sales.
“All loopholes like this should be closed so that all transactions can be reported on balance sheets. All financial aspects of any company should be transparent, easily comparable and simple to understand. Only when all risks are accurately reflected will investors, regulators, and the public truly be able to make informed decisions,” stated Ranking Member Capuano.
Ranking Member Capuano, who has been an outspoken critic of the credit rating agencies, agrees with the majority staff report’s findings that they should have downgraded MF Global more quickly. He disagrees, however, with the conclusion that they failed in their overall efforts with respect to MF Global. As the Democratic Addendum notes, “In the case of MF Global, the credit rating agencies at least rated them as essentially junk from the beginning”.
The Democratic Members also draw a distinction from the majority staff report in clarifying that MF Global’s failure was not just about one bad actor. While MF Global’s CEO Jon Corzine holds substantial responsibility, the Addendum points out that “neither Corzine nor any other individual could have taken these actions if the rules had been tighter and enforcement of them had been more stringent. Better rules and stricter enforcement would have made any such attempts more difficult and more readily apparent to regulators and investors.”
Ranking Member Capuano stated, “I thank Chairman Neugebauer for all of his work with respect to MF Global and know that we have a great deal of common ground upon which to proceed. I look forward to working with him to increase transparency and improve regulations where necessary, and to continue monitoring the regulatory improvements occurring as a result of MF Global’s collapse. We can’t stop every individual looking to circumvent the system, but we can put enough safeguards in place so that the bad actors are thwarted in their efforts.” The Addendum is attached [PDF].
Contact: Alison M. Mills (Rep. Capuano) 617-621-6208