Trading official: New regulators needed

WASHINGTON - The head of the federal agency that oversees commodities trading wants to replace it and the Securities and Exchange Commission with three new regulators to better deal with an increasingly complex financial system.

"I believe the United States should scrap the current outdated regulatory framework in favor of an objectives-based regulatory system consisting of three primary authorities: a new systemic risk regulator, a new market integrity regulator, and a new investor protection regulator," said Walter Lukken, acting chairman of the Commodity Futures Trading Commission.

The CFTC oversees futures and options trading in commodities, including oil, natural gas, and agricultural products.

Lukken, a Bush appointee who plans to leave before the Obama administration takes over, made the appeal in a speech to a futures industry gathering in Chicago, calling it "a bold new direction for our regulatory system."

The new systemic risk regulator "would have the responsibility of policing the entirety of the financial system for 'black swan' risks" and would take preventive action in those cases, he said.

The concept of black swan risk, which has recently come into vogue, is that events driving history are marked by new types of randomness. "Black swans" cut against people's expectations because they have only seen white ones.

Debate over revamping the financial regulatory regime has been swirling in Washington, D.C., since before the economic crisis took a serious turn - amplifying the urgency of the issue. The new Congress is expected to tackle the issue and begin working on legislation early next year, and the House and Senate may form a special joint committee to draft the most sweeping changes to the financial regulatory system since the 1930s.

Democrats have yet to disclose details of the changes they will push. But unregulated corners of the industry, such as hedge funds and derivatives, could be subject to federal regulation for the first time. So could insurance companies, which are now supervised at the state level.

Industry lobbyists are seeking to use the overhaul to streamline what they see as overlapping regulators that operate on outdated distinctions among commercial banks, thrifts, and investment banks.

The notion advanced by Lukken is similar in its outlines to an overhaul proposal put forward in March by Treasury Secretary Henry Paulson and the Bush administration. Under that plan, the Federal Reserve would take on the unwieldy role of ultimate cop in charge of financial market stability. Other agencies, such as the SEC and the CFTC, would see their influence diminished.

Some experts have expressed concern about concentrating too much power at the Federal Reserve while also streamlining the duties of other regulators, saying that a safety net of checks and balances could be lost.