Taking it to the Hill: Congress urged to unify standards for advisers and brokers
Regulators and investor advocates voiced support Tuesday for a proposal that addresses consumer protection and would bring investment funds under government supervision as part of Congress' efforts to revamp the U.S. financial rule book.
Regulators and investor advocates voiced support Tuesday for a proposal that addresses consumer protection and would bring investment funds under government supervision as part of Congress’ efforts to revamp the U.S. financial rule book.
Republicans objected to key elements of the plan and said the Democrats crammed too many complex topics into one hearing of the House Financial Services Committee. Lawmakers’ attendance at the hearing was sparse, and diminished further as the hours-long session progressed.
The draft legislation by Rep. Paul Kanjorski, D-Pa., closely tracks the Obama administration’s proposals for investor protection and bringing hedge funds and other private pools of capital under government supervision.
Kanjorski’s proposal also would put stockbrokers and investment advisers providing services to retail investors under the same standards of conduct.
Uniform standards were endorsed by Denise Voigt Crawford, the president of the North American Securities Administrators Association, and Mercer Bullard, a former SEC attorney and investor advocate who also appeared before the panel.
“Billionaires on Wall Street have had their day, egged on by a culture of greed, deregulation, and a survival-of-the-fittest attitude that ignored the harsh effects those things inflict upon larger society,” said Mr. Kanjorski.
The legislation would also give the Securities and Exchange Commission the authority to ban clauses in contracts that investors sign with their brokers that mandate arbitration to resolve disputes and exclude court action. That “could substantially increase dispute-resolution costs for investors and compliance costs for firms,” said Rep. Spencer Bachus of Alabama, the panel’s senior Republican.
In addition, Bachus said, the proposal doesn’t go far enough to restructure the SEC to prevent another breakdown like the agency’s failure to uncover Bernard Madoff’s massive fraud scheme over nearly two decades.
But Ms. Crawford — who represents state securities regulators — said the current arbitration process involving panels with industry representatives shouldn’t be forced on investors.
“I think that investors want choices,” she said. “They have no options.”
Kanjorski’s legislation also would put private pools of capital — hedge funds, private equity and venture capital funds — under government supervision by requiring they register with the SEC. That would open their books to federal inspection and they would be subject to disclosure requirements to investors and creditors.
During the financial crisis, private funds had to come up with money when their capital was put at risk, contributing to the strains on the financial markets, regulators have said.
At the hearing, officials of groups representing hedge funds and private equity funds expressed support in principle for requiring registration with the SEC. A venture capital industry official said it would be unfairly burdensome for firms, especially smaller ones.
“We would hate to lose some of those players,” said Terry McGuire, chairman of the National Venture Capital Association.
Bachus called hedge funds, private equity and venture capital firms “a valuable cog in our economy,” noting they weren’t among the players that precipitated the financial crisis. The burden should be on lawmakers to demonstrate the need for registration with the SEC, he said.
Throwing regulatory reins around hedge funds — the vast pools of capital that largely escape government supervision and draw hundreds of millions of dollars from pension funds, charities, university endowments and wealthy individuals — has become a key part of efforts to revamp the nation’s system of financial oversight.
Private equity firms buy, turn around and resell troubled companies a few years later. Venture capital firms invest in startup companies run by entrepreneurs.
The draft legislation also proposes creation of a national insurance office, which would collect data on the industry and advise the new systemic risk regulator — possibly the Federal Reserve — on possible threats.
Big insurance companies have been lobbying for Congress to free them from a web of state rules by establishing a federal regulator and letting the companies choose which rules to follow.
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