One provision in the legislation amends the language in the Securities Exchange Act of 1934 with the following: For “a broker or dealer, when providing personalized investment advice about securities to a retail customer (and such other customers as the Commission may by rule provide), the standard of conduct for such broker or dealer with respect to such customer shall be the same as the standard of conduct applicable to an investment adviser under the Investment Advisers Act of 1940.”
The SEC may limit mandatory arbitration for resolution of disputes between clients and brokers or investment advisors. The Comptroller General will study arbitration reform.
According to the House Financial Services Committee’s announcement of the Bill’s passage, the legislation calls for a federal Consumer Financial Protection Agency; a Financial Stability Council to oversee systemic risks; ends “Taxpayer Bailouts,” with a procedure to unwind large, failing firms; gives shareholders a say in executive pay; strengthens the SEC’s powers to “improve investor protection;” and regulates derivatives. The Bill also reforms mortgage lending: “institutions must ensure that borrowers can repay the loans they are sold;” and requires hedge funds to be SEC registered.
The Senate’s debate and vote on financial services reforms is still to come, although the Senate Committee on Banking, Housing, and Urban Affairs, chaired by Sen. Christopher Dodd (D-Connecticut) introduced its discussion draft of the Investor Protection Act (IPA), on Nov. 10 (Highlights, full draft). The Senate version of the legislation would require brokers who provide advice to investors to register as investment advisors. See related blog post: “Mr. Dodd’s Message from Washington.”