Schapiro, Obama's likely pick for SEC, on regulatory reform

Longtime financial regulator Mary Schapiro, reputedly Barack Obama's pick to head the Securities and Exchange Commission, already has some ideas on how to remake the nation's regulatory approach in response to the financial crisis.

In an Oct. 21 speech in Boston at the American Council of Life Insurers (ACLI) Annual Conference, Schapiro outlined five principles for financial services regulatory reform.

Here is Schapiro's five-point prescription:

1. Simultaneously manage systemic risk and protect investors, two objectives she clamed had for too long "operated independently, and perhaps even at odds with one another."

2. Determine how to regulate institutions deemed too big to fail, in order to "better define the types of institutions that the government will save. We can establish criteria for intervention, and make the forms of intervention more predictable. Of course, the government will need flexibility to address different market conditions. But in recognizing that we will intervene, we should make more predictable how we will intervene."

3. Establish that consumers of financial products and services receive the same level of protection, regardless of the product or service they purchase. Schapiro said this element of regulation had been a "constant theme" of hers for years, adding:

"We expect our citizens to plan for their retirement, and to figure out how to live on a combination of their own savings and investments and the threatened programs of Social Security and Medicare. Defined contribution plans and individual investments have become the basis for the financial future of many of our citizens.

We cannot expect consumers to wade through a labyrinth of regulators or to decipher which product or service will afford the greatest protection."

4. Finding the right balance between innovation and the need to protect investors.

5. Bring credit default swaps and other "systemically important" yet unregulated financial instruments into the regulatory system.

"At a minimum, this market needs a centralized clearinghouse so that the participants are known, adequate margin or collateral supports positions and the risks from counterparty failure are minimized," Schapiro said in concluding her speech.

Read the full speech here.

Schapiro will take over the SEC at a time when many are calling for an overhaul of the agency, as some blame perceived lapses in oversight for contributing to the housing and banking crises.

This will be Schapiro's second go at the SEC. She worked as a commissioner of the SEC under Presidents Ronald Reagan, George H.W. Bush, and Bill Clinton. In her career she has also overseen regulation of the US futures markets, and is currently CEO of the Financial Industry Regulatory Authority. Read her professional biography, and her Forbes.com profile.