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.
- 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.
While members of the House Financial Services Committee sparred on Tuesday over whether the Dodd-Frank Act is hurting more than it’s helping, representatives from various segments of the financial services community testifying before the committee stopped short of saying Dodd-Frank needs to be repealed.
When asked to raise their hand if they supported the repeal of Dodd-Frank, none of the seven testifying—representing groups including the Securities Industry and Financial Markets Association (SIFMA), the U.S. Chamber of Commerce and the Investment Company Institute (ICI)—did so.
Mitt Romney, the Republican presidential candidate, has pledged to repeal the law while saying some of its concepts "have a place."
Granted, some of those testifying along with Republican members of the committee were glad to share their complaints about Dodd-Frank during the hearing, “The Impact of Dodd-Frank on Customers, Credit and Job Creators,” held by the Capital Markets Subcommittee.
Rep. Scott Garrett, R-N.J., chairman of the subcommittee, argued that the stagnant economy, the 8% unemployment rate, declining wages and frozen credit was “interrelated,” and that the passage of Dodd-Frank was “one of the main reasons why there has been such tepid economic growth since the financial crisis.”
But Democratic members of the committee were quick to defend the Wall Street reform bill. Rep. Brad Miller, D-N.C., said that by attempting to do away with provisions of Dodd-Frank, “my friends across the aisle” are “planting the seeds for the next financial crisis.” While admitting that Dodd-Frank “isn’t perfect,” Miller said that whatever effect the law has had on so-called job creators “pales in comparison to the $19.2 trillion in household wealth that was lost because of the 2008 financial crisis.”
Rep. Carolyn Maloney, D-N.Y., said that repealing Dodd-Frank would be the “height of irresponsibility,” as the law “brought huge swaths” of unregulated areas of the market under regulation. While admitting that Dodd-Frank needs “adjustments,” she argued that no one “wants to go back to unregulated” derivatives, for instance, which helped “lead to the worst economic crisis in my lifetime.”
Kenneth E. Bentsen, executive vice president of public policy and advocacy at SIFMA, told the lawmakers of the aspects of Dodd-Frank that SIFMA supports, which include the creation of a uniform fiduciary standard of care for brokers and advisors providing personalized investment advice, along with the establishment of a systemic risk regulator, the Financial Stability Oversight Council (FSOC), and the new Orderly Liquidation Authority intended to resolve failing systemically identified firms.
July 21 marks the second anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act being signed into law, and the House Financial Services Committee is planning to challenge its merits all month long. The second hearing will be held tomorrow by the Financial Institutions and Consumer Credit Subcommittee and is entitled “The Impact of Dodd-Frank’s Home Mortgage Reforms: Consumer and Market Perspectives.”
"Either you’re going to protect Wall Street profits or taxpayer dollars," he said.
Those testifying mentioned several aspects of Dodd-Frank they disliked, like derivatives regulation and the Volcker rule.
Thomas Deas of FMC Corp., testifying on behalf of the National Association of Corporate Treasurers and the U.S. Chamber of Commerce, noted the potentially harmful effects of further reforms to money-market funds that the SEC is proposing.
He noted that while the changes the SEC made to the funds in 2010 “strengthened money-market funds through more stringent liquidity requirements,” the three further proposed changes the SEC is seeking will have a negative effect.
Money-market “funds are now required to meet a daily liquidity requirement such that 10% of the assets turn into cash in one day and 30% within one week,” Deas said. “This large liquidity buffer makes it unlikely that large redemption requests—even at the rate seen in the 2008 financial crisis—would force a fund to sell assets at a loss prior to their maturity.”
Advocates of further regulation for money-market funds, he said, have focused much attention on three significant structural changes—redemption restrictions, a floating net asset value and a mandatory capital buffer. “We believe each of these would have a significant negative impact on the ongoing viability of these funds, and also adversely affect the corporate commercial paper market,” he said.
Those testifying were: Bentsen of SIFMA; Deas, vice president and treasurer of FMC Corp.; Tom Deutsch, executive director of the American Securitization Forum; Kelleher of Better Markets; Thomas Lemke, general counsel and executive vice president of Legg Mason & Co., on behalf of the Investment Company Institute (ICI); Anne Simpson, senior portfolio manager, CalPERS; and Paul Vanderslice, president, Commercial Real Estate Finance Council.
Read House to Hammer Dodd-Frank Throughout July on AdvisorOne.