More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
Unveiling its proposal for financial services reform on June 17, the Obama Administration is calling for reforms in five key areas--including establishing a fiduciary duty for broker/dealers offering investment advice as well as harmonizing the regulation of investment advisors and broker/dealers. The proposal also calls for all advisors to hedge funds to register with the SEC, but it does not include establishing a self-regulatory organization (SRO) for advisors.
David Tittsworth, executive director of the Investment Adviser Association (IAA) in Washington, says the fact that the Administration's white paper does not call for the formation of an SRO for advisors "is good news." But even though the white paper calls for a fiduciary duty for B/Ds and harmonizing the rules for advisors and brokers, "the devil is still in the details," he says. "My understanding is that there will be some sort of legislation that will accompany this white paper at some point. The debate has begun now."
The Senate Banking Committee is holding hearings on the White Paper, with Treasury Secretary Timothy Geithner as the sole person testifying on June 18. A spokesman for Rep. Barney Frank's office, chairman of the House Financial Services Committee, says that now that Obama's plan has been revealed the Committee will "start a robust series of hearings" beginning the week of June 22 that will extend into July with "hopes of a mark-up [on legislation] at the end of July."
The Administration's proposal also includes creating a new Federal Services Oversight Council of prudential regulators to identify emerging systemic risks, and expanding the Federal Reserve's powers so that it can supervise all firms that could pose a threat to the nation's financial stability. A new National Bank Supervisor would also be formed to supervise all federally chartered banks.
The Obama proposal would also create the Office of National Insurance within Treasury to gather information, develop expertise, negotiate international agreements, and coordinate policy in the insurance sector.
Under the second key area of reform, in which the Administration proposes to establish comprehensive supervision and regulation of financial markets, there would be enhanced regulation of securitization markets, as well as stronger regulation of credit ratings agencies.
Protection for Consumers
The third key reform area would focus on protecting consumers and investors from financial abuse. The Administration proposes to create a new Consumer Financial Protection Agency designed to protect consumers from fraud and abusive practices--which will focus on credit, savings, and payments markets. Stronger regulation of consumer and investor products and services would also be sought. The Administration also seeks a "level playing field and higher standards" for providers of consumer financial products and services, whether or not they are part of a bank.
The Administration's plan also seeks, under its fourth reform area, to improve the tools available to the government for managing financial crises. This would involve creating what the Administration calls "a new regime" modeled on the FDIC, that would allow the government to address the potential failure of even nonbank financial institutions whose failures could pose a systemic risk. The Federal Reserve's emergency lending authority would also be revised to improve accountability.
The fifth area would raise international regulatory standards and improve international cooperation. "As we work to set high regulatory standards in the United States, we must ask the world to do the same," the Administration states in its white paper, which can be downloaded here.