More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
Setting in motion Treasury Secretary Henry Paulson's Blueprint for financial services reform, the Federal Reserve Board and the Securities and Exchange Commission (SEC) entered into a Memorandum of Understanding (MOU) last month in which they agreed to "deepen" the amount of information they share about anti-money laundering, bank brokerage activities under the Gramm-Leach-Bliley Act, clearance and settlement in the banking and securities industries, and the regulation of transfer agents.
Paulson told members of the House Financial Services Committee at a hearing July 10 on financial market regulatory restructuring that when he released the Blueprint for financial services reform in March, he anticipated that it would take some time before any of the recommendations would be implemented. However, the Bear Stearns fiasco and market turmoil has since convinced him that "we must move much more quickly to update our regulatory structure and improve both market oversight and market discipline," Paulson said. The MOU between the SEC and the Fed is "consistent with the long-term vision of the Blueprint," he told Congress. The MOU specifically covers bank holding companies and so-called Consolidated Supervised Entities that own securities firms. The MOU "builds on and formalizes the long-standing cooperative arrangements between the SEC and the Board, as well as the more recent cooperation on matters including banking and investment banking capital and liquidity following the Board's emergency opening of credit facilities to primary dealers," according to the SEC.
The SEC recently entered into a similar MOU with the Commodity Futures Trading Commission (CFTC) and plans on striking a similar accord with the Department of Labor. Paulson told Congress that there's "no doubt" in his mind that the CFTC and the SEC should be merged.
Both Paulson and Federal Reserve Board Chairman Ben Bernanke, who testified along with Paulson on July 10, asked lawmakers to give the Federal Reserve the powers it needs to collect information from financial institutions like commercial banks, hedge funds, investment banks, and other financial institutions.
More Regulation, Not Less
In his opening statement, House Financial Services Committee Chairman Barney Frank (D-Massachusetts), said the consensus among lawmakers, politicians, and regulators is that more regulation is needed for financial services, not less. A modern regulatory structure must be established to ensure the stability of the financial system, he said, adding that America "dodged a bullet with Bear Stearns. We may not be so lucky next time."
Frank said "there is a great deal of agreement that we should be moving to empower the Federal Reserve to have regulatory authority over a wide range of financial institutions." He asked Paulson and Bernanke if legislative action could wait until early next year. Both Paulson and Bernanke agreed that exactly how the Fed should take on the role of a "macro-stability" regulator would take some time to think through. "Realistically," Paulson said, "it will be difficult to get things done this year." But one priority Congress should have for this year, he said, is passing the Government Sponsored Enterprises (GSE) reform legislation, which would create a new regulator for Fannie Mae and Freddie Mac.
The House Financial Services Committee was to hold subsequent hearings on financial market regulatory restructuring later in July and continuing in the fall, with expected testimony from SEC Chairman Christopher Cox and New York Federal Reserve President Timothy Geithner.