The major financial reform, now on its way to the Senate, would, among other things, require hedge funds to register, beef up federal securities regulation, and impose executive compensation limits.
However, one thing it will not do is expand the power of FINRA to regulate investment advisers at broker/dealers. The amendment to expand FINRA’s reach was originally introduced by Representative Spencer Bachus (R-Alabama), and was scrapped today by a voice vote in the House, according to published reports.
Some industry organizations, such as the Financial Planning Association, have opposed giving FINRA more authority (see “FPA Wants to Curb FINRA Authority”). The proposal to strike the section that would have done so was proposed by Financial Services Committee Chairman Barney Frank (D-Massachusetts), and Rep. Frank Cohen, (D-Tennessee). It remains unclear what will happen next for regulation of investment advisers, according to reports.
Short of the FINRA amendment, the Wall Street Reform and Consumer Protection Act (H.R. 4173) passed the chamber on a 223 to 202 vote that came after months of debate and negotiations between Democratic and Republican leaders and pressure from lobbyists.
The Wall Street Reform and Consumer Protection Act would:
- require almost all advisers to private pools of capital—including hedge funds—to register with the U.S Securities and Exchange Commission (SEC) , and be subject to systemic risk regulation.
- strengthen the SEC’s powers to regulate the securities markets and order a systemic study of the failures that led to not detecting the Bernard Madoff Ponzi scheme.
- enable regulators to ban inappropriate or imprudently risky compensation practices, and require financial firms to disclose incentive-based compensation structures. It also gives shareholders a “say on pay,” or an advisory vote on pay practices including executive compensation and golden parachutes.
Describing the bill as “the largest overhaul of securities laws
since the New Deal,” a Wall Street Journal report said the measure
would give regulators new authority to identify and respond to systemic
risks, break up or wind down the riskiest firms, and deal with abusive
The bill’s most significant effect would be on the largest financial institutions, which would face intense new scrutiny on their operations and would be held to higher capital and liquidity standards, the news report said. The government would be allowed to break up even healthy large institutions that were considered a threat to the broader economy.
The Journal said Senate lawmakers are moving a parallel piece of legislation and that the chance of a bill reaching the President’s desk have considerably improved in the last several days.