The Investment Professional - US Sets Financial Reform Agenda

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US Sets Financial Reform Agenda

In the US efforts are afoot to pass various pieces of legislation and implement new rules designed to stiffen financial sector regulation. The Obama administration proposed a package of reforms in March, while Congress has been addressing various proposals since 2008. Federal agencies that oversee the financial sector have also been busy developing new rules and regulations. Below is a summary of the most significant legislation and regulation that has been proposed or recently enacted. Their status is current as of late October.

Mark Andresen

PROPOSALS AND RULES	DETAILS	STATUS
Executive pay curbs (proposed)	Would give shareholders a greater voice; require disclosure of incentive-based compensation plans; limit compensation plans that encourage “excessive” risk taking.	Passed by the House; similar earlier legislation passed by the House was never acted on by the Senate. The Obama administration also has proposed rules on executive pay. The Federal Reserve has proposed broad executive compensation rules across the banking industry.
New rules for hedge funds, private equity funds, venture capital firms (proposed)	Would require hedge funds, private equity funds, and venture capital firms to register with the SEC and disclose information to regulators.	Proposed by the administration. The House Financial Services Committee included these proposals in draft legislation in late October.
Creation of consumer protection agency (proposed)	Would consolidate financial-related consumer protection efforts in a new agency that will have sweeping powers to regulate financial products aimed at consumers.	Proposed by administration; opposed by the Federal Reserve System but supported by the Treasury. The House Financial Services Committee approved this legislation in late October.
Investor protection measures (proposed)	Would give the SEC powers to expand disclosures to investors and establish a fiduciary duty for financial advisors who give advice.	Proposed by the administration. The House Financial Services Committee included measures designed to further these goals in draft legislation in late October.
Derivatives regulation (proposed)	Would require standard contracts to be traded and cleared on exchanges; increase margin and capital requirements for specialized contracts; aim to reign in speculative bids.	Chairman of House Agriculture Committee and Financial Services Committee agrees on outlines of legislation; administration proposed similar rules. Overlapping responsibilities of the SEC and Commodity Futures Trading Commission complicates legislation and rules. The House Financial Services Committee approved a bill in mid-October.
Creation of a National Bank Supervisor to replace the Office of Thrift Supervision (proposed)	The national banking supervisor would replace the Office of Thrift Supervision. This new agency would oversee national banks, including federal branches and agencies of foreign banks.	Proposed by the administration. A draft bill released by the House Financial Services Committee would phase out the Office of Thrift Supervision. Thrift holding companies would be subject to supervision by the Federal Reserve.
Short-selling rules (finalized)	New SEC rules force traders to complete trades within four days; mandates increased disclosure of positions and aggregation of bets on individual stocks.	The SEC finalized rules in July, plans to revisit issue in September; the Obama administration and Congress pushing for tougher rules.
Systemic risk regulation (proposed)	The Federal Reserve would gain the authority to regulate financial institutions that pose a risk to the stability of the entire financial system.	The White House and the House of Representatives agreed in late October to a proposal under which financial firms with more than $10 billion in assets would be required to pay for the rescue of a failed competitor.
Financial Services Oversight Council (proposed)	A Financial Services Oversight Council, composed of representatives from major financial regulators and chaired by the US Treasury, would coordinate fiscal policy, identify emerging risks, and help fill regulatory gaps.	Proposed by the administration. The House Financial Services Committee has released a draft bill that includes this proposal.