Financial Crisis News Center

Private Advisor Registration Bill Approved with Bipartisan Support

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide.

The House Financial Services Committee has passed by a vote of 67 to 1 the Private Fund Investment Advisers Registration Act of 2009 (H.R. 3818), which would require managers of most hedge funds, private equity funds and venture capital funds in the U.S. to register with the Securities and Exchange Commission under the Investment Advisers Act of 1940. The existing exemption for investment advisers with fewer than 15 clients would be eliminated, and specific information reporting would be required for advisers to any “private fund.” A limited exemption would continue to apply to certain “foreign private advisers.” The existing threshold of $30 million of assets under management for mandatory SEC registration would continue to apply.

CFTC and SEC Issue Harmonization Report

This story appeared in Bank Digest.

The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) today issued a joint report identifying areas where the agencies’ regulatory schemes differ and recommending actions to address those differences, where appropriate. The report was issued in response to a White House released White Paper on Financial Regulatory Reform. The report includes 20 recommendations to enhance enforcement powers, strengthen market and intermediary oversight and improve operational coordination.

http://www.sec.gov/news/press/2009/cftcjointreport101609.pdf

Commenting on the report, SEC Chairman Mary Schapiro said, “This report is another step forward in our effort to reform the regulatory landscape and ensure greater harmonization between our agencies.” She added, “I believe these recommendations will help to fill regulatory gaps, eliminate inconsistent oversight, and promote greater collaboration.”

http://www.sec.gov/news/speech/2009/spch101609mls.htm

Financial Services Committee Approves Derivatives Regulation Bill

This story appeared in Bank Digest.

The House Financial Services Committee has approved a bill that would require the comprehensive regulation of the over-the-counter derivatives market. The bill would give rulemaking authority jointly to the Securities and Exchange Commission and the Commodities Futures Trading Commission, but authorize the Treasury Department to adopt rules if the two agencies could not agree on a joint approach. The bill includes five major provisions:

OTC Derivatives Bill Clears House Panel

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Oct 15, 2009.

The House Financial Services Committee voted 43 to 26 October 15 to pass a central tenet of the Obama administration’s financial regulatory reform agenda—legislation that would regulate the often complex and murky world of private over-the-counter derivatives trading. Many view the lack of proper regulation of the OTC derivatives market as a key factor behind last year’s financial crisis.

The bill will have to be merged with legislation from the House Agriculture Committee, which oversees the Commodities Futures Exchange Commission, before it goes to the full House for a vote.

Chairman Schapiro Remarks on Future of Financial Regulation

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide.

SEC Chairman Mary L. Schapiro, speaking at the University of Rochester's Presidential Symposium on the Future of Financial Regulation on Oct. 10, 2009, commented on gaps in financial regulation that need to be addressed, a constructive approach to systemic risk, and steps being taken by the SEC, apart from legislation, to achieve reform.

SEC Asks for Changes to House Draft Derivatives Legislation to Prevent Regulatory Arbitrage

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

While praising the House Financial Services Committee’s draft legislation to regulate the OTC derivatives markets, the SEC warned that the draft could present opportunities for significant regulatory arbitrage. In testimony before the committee, Henry T.C. Hu, Director of the Risk, Strategy and Financial Innovation Division said that the draft adopts a distinction that is not meaningful between derivatives referencing a single security or a narrow-based index of securities and derivatives referencing a broad-based index of securities. The SEC cautioned that a market participant could use a broad-based swap as part of a strategy to gain highly targeted exposure to a single company or a narrow group of companies.

Draft Adviser Legislation Receives Hedge Fund Industry Support

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The hedge fund industry generally supports draft legislation in the House Financial Services Committee requiring advisers to hedge funds and private equity funds to register with the SEC. Vetted by Rep. Paul Kanjorski, Chair of the Capital Markets Subcommittee, the Private Fund Investment Advisers Registration Act would mandate the registration of private advisers to hedge funds and other private pools of capital and impose new recordkeeping and disclosure requirements on private advisers in order to provide regulators the information they need to evaluate both individual firms and entire market segments.

Hedge Fund Industry Supports House Draft Legislation Regulating OTC Derivatives Markets

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The hedge fund industry has expressed qualified support for the House Financial Services Committee draft legislation regulating the OTC derivatives markets. In testimony before the committee, the Managed Funds Association expressed full support for the broad goals of the Over-the-Counter Derivatives Markets Act of 2009 to reduce systemic risk through the use of central clearing houses, the segregation of customer collateral by central clearing houses, and by providing customers with the option of having their collateral for customized swaps segregated. The MFA also endorsed provisions increasing transparency through trade and position reporting and providing the government with additional authority to avert and respond to economic or financial turmoil without disrupting ordinary market operations. The draft is being circulated by Barney Frank, the committee Chair. It is expected to be marked up in October.

Chairman Frank Circulates Draft Legislation Regulating OTC Derivatives

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Rep. Barney Frank, Chair of the Financial Services Committee, has introduced draft legislation regulating the OTC derivatives markets by mandating exchange clearing and trading for the majority of derivatives products while preserving the over-the-counter market for specialized derivatives. The Chair’s draft is designed to implement the broad goals of the Obama Administration to increase transparency and eliminate systemic risk in the OTC derivatives markets while at the same time protecting end users seeking to hedge their risks and preventing much of the U.S. derivatives market from being forced overseas.

Broker-Dealer Standards Must Be Harmonized, Regulators Say

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Regulation of broker-dealers and investment advisers must be harmonized in order to protect consumers, many of whom are likely to be unaware of the different obligations and protections the two functions operate under, regulators told Congress October 6.

The standard for broker-dealers offering investment advice should be raised to the same fiduciary standard—which puts the customer’s best interests foremost—as that which applies to investment advisers, said Denise Crawford, President of the North American Securities Administrators Association.