More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
GOP attempts to roll back the Dodd-Frank Act under the guise of job creation continue.
Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, plans to hold a hearing on Wednesday, March 16, on “Legislative Proposals to Promote Job Creation, Capital Formation, and Market Certainty,” to examine five draft bills—four of which would amend or repeal provisions of the Dodd-Frank Act.
The four draft bills are: The Small Business Capital Access and Job Preservation Act; The Business Risk Mitigation and Price Stabilization Act of 2011; The Burdensome Data Collection Relief Act; The Asset-Backed Market Stabilization Act of 2011.
The fifth bill to be discussed on Wednesday is The Small Company Formation Act of 2011, which would update an existing Securities and Exchange Commission (SEC) rule “to better promote capital formation.” According to a memorandum distributed to Committee staffers on Tuesday and obtained by AdvisorOne, this draft legislation would increase the offering threshold for companies exempted from SEC registration under SEC Regulation A from $5 million—the threshold set in the early 1990s—to $50 million. The bill also requires the SEC to re-examine the threshold every two years and report to Congress on decisions regarding the adjustment of the threshold. The bill also would provide the SEC with the authority to increase the threshold.
The first draft bill, the Small Business Capital Access and Job Preservation Act, seeks to halt the registration of private investment funds with the SEC. Dodd-Frank amended the Investment Adviser Act of 1940 to require most advisors to private investment funds to register with the SEC. But the draft legislation argues that because private equity funds “are not a source of systemic risk, subjecting their advisers to [SEC] registration requirements imposes a burden on them while doing nothing to make the financial system more stable or less risky.”
Moreover, the bill says that “given the costs of registration and ongoing compliance, subjecting private equity advisers to these registration requirements diverts capital, time, and effort from activities that result in job creation.”
The second draft bill, the “Business Risk Mitigation and Price Stabilization Act of 2011” would replace the definitions set forth in the Dodd-Frank Act of “Major Swap Participant” and “Major Security-Based Swap Participant.” The memo to staffers states that those definitions would be replaced by definitions adopted by the House by a vote of 304-122 on Dec. 10, 2009, during its consideration of regulatory reform legislation (H.R. 4173). By replacing these definitions, the memo states, “the bill would ensure that market participants that do not maintain a substantial net position in swaps are exempted from the Dodd-Frank Act’s clearing requirements, the costs of which would affect the ability of end users to effectively hedge legitimate business risks.”
The third draft bill, The Burdensome Data Collection Relief Act, would repeal Section 953(b) of Dodd-Frank requiring publicly traded companies to disclose the median of the annual total compensation of all employees of the company (other than the CEO), the annual total compensation of the CEO, and a ratio comparing those two numbers.
Rep. Nan Hayworth, (R-N.Y.), a member of the House Financial Services Committee, who introduced the draft bill, said in a statement that the “Chief Executive Officer (CEO) Pay Ratio” disclosure requirement “places an unnecessary logistical and cost burden on all publicly traded companies, not just financial institutions.” Repeal of the disclosure requirement, she said, “will enable businesses to direct those resources for investment and job creation.” The Dodd-Frank Act disclosure requirement, she continued, “will be costly and time-consuming for employers, will serve no useful purpose for company shareholders, and will divert resources from job creation.”
The fourth draft bill, The Asset-Backed Market Stabilization Act of 2011, would reinstate SEC Rule 436(g), which was repealed under Section 939G of Dodd-Frank. As the memo to staffers states, as a result of Section 939G of the Dodd-Frank Act repealing SEC Rule 436(g), “if a registration statement includes a rating, the rating agency must file written consent with the SEC to be considered an ‘expert,’ thus subjecting the rating agency to potential liability if the rating turns out to be inaccurate. The rating agencies have refused to consent. As a result, issuers have been unable to include credit ratings in statements and prospectuses.”