Jay Mallin/Bloomberg NewsHarvey Pitt, the former chairman of the Securities and Exchange Commission.
7:26 p.m. | Updated
Harvey Pitt, a former chairman of the Securities and Exchange Commission, criticized the Dodd-Frank Act on Tuesday, saying the financial regulatory overhaul would fall short of its goal of protecting investors from future financial crises .
The law “unfortunately did not provide the regulatory reform that our financial and capital markets, and those who invest, so urgently needed and still require,” Mr. Pitt, who was chairman of the S.E.C. from 2001 to 2003, said in testimony before the Senate Banking Committee.
“The act is unduly complex, adds more layers of regulatory bureaucracy to an already overbloated bureaucracy, makes financial regulation more cumbersome and less nimble than it already was,” said Mr. Pitt, now the chief of Kalorama Partners, a Washington consulting firm.
Nearly a year after President Obama signed the Dodd-Frank Act into law, the banking committee on Tuesday examined the law’s efforts to protect investors. The act dedicated an entire section to “investor protections,” creating an Office of Investor Advocate, enhancing regulation of credit rating agencies and reining in executive pay.
But some of the corporate governance rules “favor certain special interests at the expense of rank-and-file shareholders,” Mr. Pitt said.
He also objected to a new corporate whistle-blower program, created under the act. In April, the Securities and Exchange Commission adopted a program that rewards employees who report crucial information about fraud and other wrongdoing. Under the rules, whistle-blowers are not required to report fraud internally before going to the government.
“This provision threatens to undermine corporate governance, internal compliance and the confidence of public investors in our heavily regulated capital markets,” said Mr. Pitt, a Republican who was appointed to run the S.E.C. by President George W. Bush.
Mr. Pitt issued some support for expanding the S.E.C.’s authority to examine thousands of investment advisers. But he said the agency lacked the budget to fully take on its new responsibilities.
His comments on the agency’s budget echo concerns raised by consumer advocates, who have long called for the S.E.C. to receive a budget increase.
“While we are sympathetic to those who argue that money alone cannot solve all of the agency’s problems, we also believe that, without additional funding, the agency cannot reasonably be expected to effectively fulfill its investor protection mission,” Barbara Roper, director of investor protection for the Consumer Federation of America, told the committee.
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