Schapiro Asks Congress for Greater Oversight Powers

As Treasury Secretary Timothy Geithner laid out the Obama Administration’s plans for financial services reform before the House Financial Services Committee March 26, SEC Chairman Mary Schapiro told members of the Senate Banking Committee the same day that the Commission is considering harmonizing the rules that govern broker/dealers and investment advisors. “We are studying whether to recommend legislation to break down the statutory barriers that require a different regulatory regime for investment advisors and broker/dealers, even though the services they provide often are virtually identical from the investor’s perspective,” Schapiro told members of the Senate Banking, Housing, and Urban Affairs Committee. Schapiro also said she plans to ask lawmakers to craft legislation that would require investment advisors to hedge funds, as well as possibly hedge funds themselves, to register with the Commission, and that the SEC should have the power to regulate credit default swaps and municipal bonds.

In her prepared testimony, Schapiro also told Congress that SEC staff will recommend a proposed rule that would require certain investment advisors to have third-party compliance audits. “To ensure that all broker/dealers and investment advisors with custody of investor funds carefully review controls for the safekeeping of those assets,” she said, “I expect the staff to recommend that the Commission consider requiring a senior officer from each firm to attest to the sufficiency of the controls they have in place to protect client assets.” Schapiro said the list of certifying firms would be available on the SEC’s Web site “so that investors can check on their own financial intermediary.”

Senator Christopher Dodd (D-Connecticut), chairman of the committee, asked Schapiro what role a systemic risk regulator should play. Schapiro responded that while the “devil is in the details,” Congress should not create a “monolithic” entity that usurps the powers of other regulators like the SEC. She said that any regulatory reform should ensure that the SEC remains an independent agency.

A “Broad” Review of the SEC’s Structure

Senator Richard Shelby (R-Alabama), ranking member of the committee, queried Schapiro about the SEC’s examination function creating a “dangerous wall” between the Commission’s examiners and policymakers. Schapiro responded that reviewing the structure of the SEC “broadly” is high on her list of priorities, which includes looking at the structure of the Office of Compliance Inspections and Examinations (OCIE). She said the agency must have an examination staff that can “do the job” and must be “linked back to the policymakers in the organization.”