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At a hearing of the House Financial Services Oversight and Investigations Subcommittee last week, chairman Patrick McHenry called the SEC’s approach to regulating the so-called JOBS Act’s crowdfunding provision too complicated, Wolters Kluwer analyst James Hamilton reports.
Entrepreneurs who use crowdfunding to raise capital for their ventures via the Internet do not typically offer donors a share in any financial return their investments may help produce. But Title III of the JOBS Act created an exemption in federal securities laws so that those relying on crowdfunding could offer and sell securities—and directed the SEC to establish rules governing that exemption.
In McHenry’s opinion, the rules the agency came up with are unacceptable given what he says is the fact that capital knows no boundaries today and that the European Union is moving forward with crowdfunding regulations of its own that he considers less onerous, Hamilton reports.
McHenry’s comments on the SEC’s proposed crowdfunding regulations [PDF] came amid a broader discussion of cross-border financial regulation and international competitiveness. McHenry, a North Carolina Republican, said during the hearing that the proposed crowdfunding rules are part of what he views as a shift toward excessive regulation in the wake of the Dodd-Frank Act’s enactment that could harm the global competitiveness of U.S. financial institutions. “In the course of implementing the Dodd-Frank and Basel III rules, U.S. regulators have imposed and continue to impose regulations that will undoubtedly constrain banking and financial services,” he said.
Speaking at the hearing, Louise Bennetts of the Cato Institute echoed McHenry’s view. “One path leads to a system where American banks and financial services firms, buckling under the weight and excessive and contradictory regulations, become less diversified, less competitive globally, more inward looking, and in my view, potentially more unstable,” sje said. “This path leads to a sub-optimal outcome—one in which financial firms are less focused on market drivers and meeting the needs of customers and more on pleasing local regulatory authorities.”
The alternative, Bennetts said, is to realize that regulations may have gone too far. “The time has come to ask ourselves ‘what was the purpose of this all?’ she said. “If the purpose is to make the United States banking sector less crisis-prone, safer, and move competitive, we need a comprehensive and realistic assessment of whether all these regulations—given their significant costs—are achieving that outcome.”