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Daniel Gallagher: the UAE competes against international financial hubs and has become one of the most important emerging markets worldwide. The US does not implement the Twin Peaks system because it does not fit the nature of the US financial markets.
As part of a dialogue session on the Twin Peaks system, the Securities and Commodities Authority (SCA) hosted Daniel Gallagher, Commissioner of the US Securities and Exchange Commission (SEC), who gave a presentation about SEC and the forms of cooperation between the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB).
Throughout the session, Gallagher noted that the UAE has made considerable achievements as an international financial hub and an important emerging market and described it as a "laboratory" for innovation and creativity. He praised the attention the country gives to opening channels with financial markets across the globe and explained that his perspective was the result of following up and focusing on global financial hubs, such as Hong Kong, Singapore, Shanghai, the European Union, as well as on unconventional financial markets and developing markets, in addition to observing what is happening in other markets in different parts of the world.
Speaking of the US acts, Gallagher said that they often come as a response to global crises. The Securities Act of 1933 and the Securities Exchange Act of 1934 were passed as a response to the Great Depression in 1929, the Sarbanes-Oxley Act was enacted as a reaction to the dot-com bubble and major corporate accounting frauds, and the Dodd-Frank Act was enacted in 2010 as a response to the global financial crisis.
Gallagher indicated that this Act does not exclusively address the problems that emerged during the crisis, but deals with many others issues of concern to the US economy as well as the US financial markets.
He explained that the Act includes some general provisions and assigns regulators the task of issuing specific rules and regulations (SEC is required to issue 100 regulations) to deal with the matters addressed by the Act. Gallagher added that the Act is still highly controversial in government and market circles for its radical changes and regulatory burdens.
Speaking about the initial public offering (IPO) market, Gallagher indicated that in 2008, the US markets were unattractive with few IPOs relative to other European and Asian markets. This prompted the SEC's committee to make necessary efforts and review international experiences, which resulted in the passage of the Jumpstart Our Business Startup Act (JOBS) in 2012, the first to be passed in a long time to ease regulatory burdens. The main objective of the JOBS Act was to make available new opportunities and means for medium-sized and emerging growth companies, whose total annual revenues barely exceeds one billion dollars, to achieve the necessary growth and provide job opportunities to address the problem of increased unemployment. JOBS includes important points, such as:
- Increasing the maximum offering price from USD$5 million to USD$50 million.
- Identifying eligible investors, who own assets of no less than USD$1 million.
- Companies wishing to make public offerings must present to the commission the prospectus without making an announcement to the public for an initial review(which has not existed previously) to maintain confidentiality.
- Reducing corporate disclosure requirements.
- Raising funds from the public via electronic means, or what is called crowdfunding.
- Dividing companies wishing to make offerings into two categories: 1) companies with an offering value of USD$20 million and 2) companies with an offering value of USD$50 million.
- Exempting companies from registering with SEC as to private placements.
Gallagher stressed that although the SEC's committee passed the Act, there is still a need for a market for small businesses similar to those in Britain, Canada, and India, or tiered trading platforms. He emphasized the importance of enabling such companies to secure finance channels through public offerings. He pointed out that SEC is facing numerous transparency and liquidity challenges and is attempting to overcome them.
Responding to audience questions about the Twin Peaks system, Gallagher said that the US had not implemented this system, in spite of its proven efficiency in some countries, due to the large number of US regulatory bodies, including SEC and another body supervising commodity and derivatives futures, as well as other bodies responsible for financial and monetary regulation, including the Federal Reserve Bank (Fed) and the Office of the Comptroller of the Currency (OCC), making it difficult to implement this regulatory model. He added that a Financial Stability Oversight Council (FSCO) was established instead, which includes representatives from all agencies regulating financial patterns in the US and exercises the responsibility of supervising and maintaining financial system stability and managing risks in relation to entities with regulatory importance.
