RETAIL REGULATION REVAMP NOT IMMINENT

Issues that affect the retail segment of the financial services industry may not win immediate attention from Congress and President-elect Barack Obama’s administration.

“I don’t know whether Congress will have the appetite and desire to get to that level of legislation when they have so many systemic issues to wrestle with,” said Ira Hammerman, general counsel for the Securities Industry and Financial Markets Association of Washington.

“It will be a question of band-width, and how much time and attention that Congress can devote to all of these financial service issues,” he said.

Duane Thompson, managing director in the Washington office of the Denver-based Financial Planning Association, also said that the top priority of Congress will be looking at systemic issues.

“Congress is going to do what Congress thinks is most important first. That will probably be looking at system market regulation issues and the financial stability of institutions,” Mr. Thompson said.

“But eventually, they will drill down in other areas, including financial advice at the retail level,” he said.

Fiduciary standard

The FPA, the Certified Financial Planner Board of Standards Inc. of Washington and the National Association of Personal Financial Advisors of Arlington Heights, Ill., are moving to form a coordinated front to support the fiduciary standard as a requirement for giving investment advice (InvestmentNews, Dec. 15).

Likewise, one of the primary goals of the North American Securities Administrators Association Inc. of Washington is mandating fiduciary standards for financial advisers.

NASAA opposes the idea floated in the Treasury Blueprint for Financial Regulatory Reform, issued last March, which would bring advisers under the regulation of the Financial Industry Regulatory Authority Inc. of New York and Washington.

“The states do an excellent job addressing the issues” that affect investment adviser firms and representatives, said Maryland Securities Commissioner Melanie Senter Lubin. “Finra’s role is regulating broker-dealer activities, not investment activities,” she said.

Mr. Hammerman sees the situation differently.

The U.S. financial services industry needs “someone at the top of the chain who can look far and wide across all charters,” he said.

The Federal Reserve Board has been mentioned in Washington as the institution most likely to fill such a position.

Such a superregulator should have authority over financial companies, regardless of whether an enterprise is a hedge fund, a pension fund or any other kind of financial services business, Mr. Hammerman said.

SIFMA envisions such a regulator working primarily with the 25 to 30 largest financial services companies in the country.

“We’re not talking about hundreds or thousands” of companies that would come under such systemic regulation, Mr. Hammerman said.

SIFMA is also getting behind the idea of an optional federal charter for the insurance industry.

“We’ve all lived through the AIG situation this year,” Mr. Hammerman said, referring to American International Group Inc. of New York, which was seized by the federal government after a solvency crisis caused by losses from its credit default swaps business.

Support from SIFMA for the optional federal charter is music to the ears of the American Council of Life Insurers of Washington, which has long lobbied for such a charter.

While systemic reform will be the top priority of the House Financial Services Committee, “there [are] some particularly important issues regarding consumer protection,” committee chairman Barney Frank, D-Mass., said at a Consumer Federation of American financial services conference in Washington Dec. 4. “There’s a danger that if we focus only on the systemic risk aspects of preventing the kind of major crisis we’ve seen, that protection of consumers and investors will be subsumed,” he said.

When state regulators tried to intervene to get money back for investors in auction rate securities, they were met with resistance from federal regulators who were worried about the failure of the financial institutions that had issued the securities, Mr. Frank said.

“That’s why one of the things that we are determined to do in our committee is to separate out the function of systemic risk protection and investor/consumer protection. Those two things have to be kept in separate institutional areas because otherwise the investor protection will lose out in some cases,” Mr. Frank said.

E-mail Sara Hansard at [email protected].