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December 01, 2009 at 02:00 AM
As we enter the final month of 2009, the financial services industry anticipates some type of reform from Washington by year-end, but the consensus is that there won’t be action until 2010 on the overhaul legislation introduced November 10 by Senator Christopher Dodd (D-Connecticut), chairman of the Senate Banking, Housing, and Urban Affairs Committee. That bill was scheduled for markup the week of November 16, but there is little Republican support.
The Dodd legislation would create a single bank regulator called the Financial Institutions Regulatory Authority (FIRA), combining the functions of the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), the state bank supervisory functions of the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve, and the bank holding company supervision authority from the Federal Reserve.
Rep. Barney Frank (D-Massachusetts), chairman of the House Financial Services Committee, wants to merge the OCC and the OTS, and allow the Federal Reserve and FDIC to retain their supervisory powers. The Obama Administration has the same desire. Frank has been quoted as saying that “there’s no remote chance” that Dodd’s single bank-regulator concept will see the light of day. Frank’s financial services reform plans would create a Financial Services Council to advise the Fed–which would be made up of officials from the Securities and Exchange Commission, FDIC, OCC, and the Credit Union National Association (CUNA).
The Effect on Advisors
David Tittsworth, executive director of the Investment Adviser Association, notes some areas in Dodd’s proposal that would affect advisors. The bill would increase the $25 million in AUM threshold separating SEC-and state-registered investment advisors to $100 million. “This would shift about 4,200 SEC-registered investment advisors to state regulation,” Tittsworth says. Dodd’s plan would also remove the broker/dealer exclusion from the Investment Advisers Act and thus would subject any broker/dealer that meets the definition of ‘investment adviser’ to the Investment Advisers Act, including fiduciary duty obligations, he says. The plan would also build a self-funding mechanism for the SEC.
Another bill of particular interest to advisors is the Investor Protection Act (H.R. 3817), which the House Financial Services Committee approved November 4 by a vote of 41 to 28. The bill now goes to the full House floor, but Frank said November 3 that the full House will likely not begin debating financial services reform until the first week of December.
During markup of the Investor Protection Act October 28, several amendments were approved by voice vote, and were included in the bill that now goes to the full House.
The Financial Planning Coalition is vehemently opposing an amendment by Rep. Spencer Bachus (R-Alabama), the ranking Republican on the committee, that would extend the regulatory authority of the Financial Industry Regulatory Authority (FINRA) to cover investment advisors who are associated with broker/dealers under FINRA’s authority.
The Coalition, which consists of the CFP Board, the Financial Planning Association, and the National Association of Personal Financial Advisors, sent a letter to Frank’s office November 2 imploring the Congressman to “conduct a more thorough examination before allowing the delegation of substantial authority from the Securities and Exchange Commission to a self regulatory organization” like FINRA.
