Impact of Financial Regulations Proposal on Payments

President Obama’s sent a draft proposal of new financial regulations to Congress today. This 85-page document outlines sweeping reorganization of financial-markets are supervised since the Great Depression. It will touch almost every facet of banking from “how mortgages are underwritten to the way exotic financial instruments are traded” according to Damian Paletta at the Wall Street Journal.

The following five objectives are outlined and discussed in this document.

  1. Promote Robust Supervision and Regulation of Financial Firms
  2. Establish Comprehensive Regulation of Financial Markets
  3. Protect Consumers and Investors From Financial Abuse
  4. Provide the Government With the Tools It Needs to Manage Financial Crises
  5. Raise International Regulatory Standards and Improve International Cooperation

The second objective incorporates the following provision that will touch payments systems – “Strengthen Oversight and Functioning of Systemically Important Payment, Clearing, and Settlement Systems and Related Activities.” This provision proposes that the “Federal Reserve have responsibility and authority to conduct oversight of systemically important payment, clearing and settlement systems, and activities of financial firms.”

It seems that this provision mainly deals with commercial financial instruments like tri-party repurchase agreements and OTC derivatives that are important to the liquidity of financial institutions and markets. It does not seem at this point that this provision would touch or have implications for the merchant payments systems like Visa/MasterCard, EFT networks, NACHA, etc.

This proposal has to go through the House and Senate where legislation will be drafted and negotiated to make this plan work. So many things could change, including specific payment systems that could be regulated by this financial regulatory overhaul.



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