S. 3217 Becomes H.R. 4173, Passes In Senate

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, has said that he hopes work on a final bill will be completed by June 30.

“The two bills are very similar, and the House is ready to go to conference to work out the remaining issues,” Frank said in a statement shortly after the Senate passed its bill. ” I am confident that we can have a bill ready for President Obama’s signature very soon.”

WHAT’S IN THE SENATE’S H.R. 4173

The Senate version of H.R. 4173 would require the SEC to study the idea of requiring all who provide investment advice, including broker-dealers and life insurance agents who are licensed to sell securities, to abide by a fiduciary standard, then report back to Congress in 18 months.

Today, financial planners and other investment advisors already abide by a fiduciary standard, which requires that the advisors serve customers without having any conflicts of interest. Broker-dealers, including many life producers, use a suitability standard, which requires only that the verify that a product sold to a consumer suits the needs of the consumer.

The final version of H.R. 4173 would give the SEC the authority to develop new rules based on its fiduciary standard study findings.

Financial planners, consumer groups and many members of Congress have been supporting the idea of creating a universal fiduciary standard.

The Consumer Federation of America, Washington, blasted the lack of a universal fiduciary standard requirement. “We are deeply disappointed that the bill does nothing to ensure that brokers have to put their customers’ interests ahead of their own when they give investment advice,” said Barbara Roper, director of investment protection at the CFA.

Another provision in the Senate version of H.R. 4173 would impose restrictions on the proprietary trading activities of banks, but it apparently would impose much looser limits on the proprietary trading activities of insurers.

The restrictions are based on the “Volcker rule” proposal. Former Federal Reserve Chairman Paul Volcker wants to limit federally insured banks’ ability to engage in proprietary trading, because of a concern that access to federal support encourages bankers to take on too much risk.

Massachusetts Mutual Life Insurance Company, Springfield, Mass., and other Massachusetts financial services companies apparently persuaded Brown that strict limits on insurers’ proprietary trading activities would be too onerous. Congress watchers say Brown worked through Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, to win concessions on the proprietary trading provision both from Reid and from Sen. Christopher Dodd, D-Conn., who oversaw the drafting of the Senate financial services bill.

The Senate version of H.R. 4173 also would:

• Give the Federal Reserve Board the authority to regulate large insurers and other large financial institutions that are not banks.
• Create an Office of National Insurance within the Treasury Department. The ONI would compile data on insurance companies and the insurance industry, and it would have the authority to reconcile state insurance laws with the provisions in international trade agreements.
• Give regulators in the state of domicile of a reinsurer or surplus lines carrier the authority to govern that reinsurer or surplus lines carrier.
• Revamp the rules governing the credit rating agencies.
• Change the rules governing swaps and other derivatives.