Financial Reform Watch : Financial Services News & Information : Blank Rome Government Relations Lobbying Firm : Government Relations, Corporate Governance : Financial Reform Watch Law Blog

The Treasury Department today released draft legislation outlining a central pillar of the Obama administration’s financial regulatory overhaul: the creation of the Consumer Financial Protection Agency (CFPA), an independent regulator with broad authority over “any financial product or service” used by consumers. Seeking to clarify the administration’s June 17th white paper on financial regulatory reform, the legislation provides lawmakers and industry leaders with the statutory details regarding the proposed CFPA.

According to the draft language, in order to continuously monitor consumer risks, the agency—composed of a five-member board led by a presidentially-appointed director subject to Senate confirmation—would collect information related to loans, products, and services from both banks and non-banks. Additionally, consumer financial regulations that are currently divided among several agencies—the Federal Reserve, FDIC, Office of Comptroller of the Currency, Office of Thrift Supervision, Federal Trade Commission, and National Credit Union Administration—will be consolidated within the CFPA. The legislation would have these regulators transfer functions, rules, and employees to the new CFPA within six to eighteen months following enactment. The agency must research, analyze, and report on consumer awareness and understanding of financial products, related disclosure statements, related risks and benefits, and consumer behavior related to such products. The agency would also collect and track consumer complaints and create a new, integrated disclosure form for mortgage transactions, unless the Department of Housing and Urban Development and the Fed can achieve the same goal prior to the transfer of such responsibilities to the CFPA. There are also provisions related to civil penalties and enforcement authority.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

On May 27, 2009, the Securities and Exchange Commission (the “SEC”) proposed amendments to Rule 206(4)-2 under the Investment Advisers Act of 1940 (“Advisers Act”) which governs custody arrangements for registered investment advisers (“Rule 206(4)-2”).

The proposed rule, if adopted, would require registered investment advisers that have custody of client funds or securities to undergo an annual surprise examination by an independent public accountant to verify client funds and securities. In addition, unless client accounts are maintained by an independent qualified custodian (i.e., a custodian other than the adviser or a related person), the adviser or related person must obtain a written report from an independent public accountant that includes an opinion regarding the qualified custodian’s controls relating to custody of client assets.

Finally, if adopted, the proposed rule would provide the SEC with better information about the custodial practices of registered investment advisers. The proposed rule is designed to provide additional safeguards under the Advisers Act when an adviser has custody of client funds or securities. Comments on the SEC’s proposal are due to the SEC on or before July 28, 2009.

Excerpt from the Corporate and Securities Update published by Blank Rome LLP, click here to read the full alert.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

House Financial Services Committee Chairman Barney Frank (D-MA) changed the game yesterday with his announcement that the House would tackle financial reform by considering a series of smaller, targeted bills rather than a more comprehensive reform bill. Frank said he anticipates his committee will move four to six separate bills between July and the end of the year. First out of the gate will be legislation to create a new "Consumer Financial Protection Agency" proposed by the Obama administration.

With Frank’s Senate counterpart, Banking Committee Chairman Chris Dodd (D-CT), fully occupied managing health care legislation, the timeline continues to slip in the upper chamber. Frank remains committed, however, to working the major issues through his committee this summer, and has already scheduled thirteen hearings and markups for July.

There is little doubt Congress will impose new consumer protections on the financial service industry. Whether it will create a new agency to police them remains to be seen. Given budget concerns and other competing priorities, Congress may ultimately determine to enhance the consumer protection requirements, including simplified disclosure, within the existing regulatory framework of the SEC, FDIC, Federal Reserve, and the potentially combined Offices of the Comptroller of the Currency and Thrift Supervision.

House Financial Services Committee Schedule

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Now that everyone has had a day or more to digest the Obama administration’s plan for Financial Regulatory Reform, suggestions, questions, and critiques are coming from all corners. Here is a sampling of the top issues under discussion.

Systemic Risk Regulator –

Sen. Mark Warner (D-VA), who sits on the Banking Committee, objects to the plan’s expansion of the Federal Reserve’s role in managing systemic risk, believing it would concentrate too much power in one entity. Warner instead proposes the establishment of a Systemic Risk Council comprised of the Treasury, the Fed, and the other financial regulators that would, together with a permanent council staff, be able to assess and minimize risks comprehensively across the financial landscape. The House Republicans also prefer the council approach, proposing their own version – the “Market Stability and Capital Adequacy Board”-- last week.

Tier I Financial Holding Companies --

What companies will be considered Tier I Financial Holding Companies and subject to new regulation by the Fed? The Fed and Treasury are to establish the criteria, but some companies that are not currently subject to federal regulation might include General Electric, Berkshire Hathaway, State Farm Insurance, or even WalMart. Those not used to federal regulation will be given five years to ease into the new regime – the non-financial activity restrictions in the Bank Holding Company Act.
 

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

Last month we were entertained by a Financial Service Primer set in Winnie the Pooh’s Hundred Acre Wood. Since then, Christopher Robin has unveiled his big plan to reform the financial services markets.  Please click below to read about financial reform through a different lens.

Another Romp Through the Hundred Acre Wood

• Email This
• Print
• Comments
• Trackbacks
• Share Link

President Obama today released the long-awaited proposal for reform of the regulatory structure overseeing the financial services industry. It is a sweeping proposal with broad implications for the entire industry. It reshuffles regulatory powers, combines some agencies, creates a new one and extends federal regulatory powers to products and firms which are currently not federally regulated or regulated at all. Congress, the industry,the media and other stakeholders are poring over the 85-page "white paper" describing the proposal. Click here to go to the document.
 

Brief Summary

1.      Avoid Future Systemic Risk/Promote Robust Supervision and Regulation – Raise capital and liquidity requirements for banks and systemically significant financial firms; establish a Financial Services Oversight Council of regulators to coordinate and prevent systemic risk; establish a new National Bank Supervisor in Treasury to oversee federally chartered banks; bring hedge funds and other private pools of capital into the regulatory framework; require public companies to hold non-binding say-on-pay shareholder votes and have independent compensation committees; review accounting standards; establish the Office of National Insurance within Treasury to enhance oversight of the sector.

2.      Reform the Structure of the Financial System – impose “robust” reporting requirements on issuers of asset-backed securities; reduce reliance on credit rating agencies; require the originator, sponsor or broker of a securitization to retain a financial interest in its performance; harmonize the regulation of futures and securities; safeguard payment and settlement systems; subject all derivatives trading to regulation; strengthen oversight of systemically important payment, clearing and settlements systems.

3.      Protect Consumers and Investors – improve the SEC’s ability to protect investors and establish a new Consumer Financial Protection Agency to identify gaps in supervision and enforcement; ensure the enforcement of consumer protection regulations; improve state coordination; and promote consistent regulation of similar products.

4.      Enable the Government to Manage Financial Crises -- establish a resolution mechanism, similar to the FDIC’s,  for non-bank financial firms and subject those whose failure could harm the financial system (Tier I Financial Holding Companies) to Fed supervision; require the Fed to get Treasury sign off when the Fed invokes its emergency lending authority for “unusual and exigent circumstances.”

5.      Improve International Supervision and Coordination – improve oversight of global financial markets; strengthen the capital framework; coordinate supervision of international firms; enhance crisis management tools.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

President Obama is today releasing his plan for a new regulatory structure to mitigate risk in the financial marketplace. Please click here to see the proposal from the Administration. Financial Reform Watch will be posting analysis shortly.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Tired of being labeled as obstructionists, Republicans on the House Financial Services Committee on Thursday issued their plan for financial regulatory reform. Led by the committee’s Ranking Minority Member Spencer Bachus (R-AL) and TARP Congressional Oversight Committee member Jeb Hensarling (R-TX), the Republican solutions stem from three principles – prevent any future Wall Street bailouts; stop the government from picking winners and losers in the financial system; and restore market discipline.

While the Republican plan does not address every issue -- most notably missing is insurance regulation – those included represent a consensus view within their caucus. Bachus described their plan as a “line in the sand” from which Republicans can negotiate with the Democrats. Hensarling, who before coming to Congress served on the executive compensation committee of a company publicly traded on the New York Stock Exchange, was particularly critical of the latest push to regulate compensation. A better approach, Hensarling believes, is the creation of a new “Market Stability and Capital Adequacy Board,” which would be charged with flagging risky practices across the board. The Republicans offered as an example the practice of rewarding loan originators for loan volume with no regard to loan quality, saying that such a board would have been able to halt that.

The White House plans to release its comprehensive reform plan on June 17th. Will the Obama administration give a nod to bipartisanship by including a few elements of the Republican plan? Financial Reform Watch will compare and contrast the plans later this week.

Central Elements of the Republican Plan

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Obama Administration took additional steps to rein-in executive compensation today by announcing the appointment of a "pay czar" at the White House and announcing proposed principles for regulating executive compensation where authority exists to do so. They also asked for legislation to advance the concept of giving shareholders a "say on pay." The suggested principles are not as prescriptive as some may have feared, but taken together, today's proposals and actions are generating some concerns about how the rules of the game are being changed.

Early in the day, Treasury Secretary Geithner unveiled the administration’s approach to regulating executive compensation practices at financial institutions and publicly-traded companies. In order to “encourage sound risk management” and to align pay practices with long-term corporate health, the administration laid out the following broad principles:

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Ever since the AIG bonus brouhaha, TARP recipients knew the day would come when federal officials would step in to manage their compensation structure. Several have been scrambling to raise the private capital necessary to repay their TARP loans just to avoid the anticipated executive compensation restrictions. There are reports today that Treasury Secretary Geithner may announce new guidelines as early as this week. However, he is not currently scheduled to appear on Capitol Hill on this topic until the House Financial Services Committee hearing on June 18th. Whenever he makes his announcement, we expect he will explain that the new executive compensation rules will apply to some TARP recipients permanently – those that accepted more than one round of bailout money -- regardless of whether or not they have paid back the federal funds. In addition, it is also reported that Treasury will be suggesting "guidelines" to be used for executive compensation in financial services firms that have not receive TARP assistance.

It appears the restrictions will be imposed on a company’s 25 highest earners. Reportedly, federal bank regulators will also be granted new authority to impose compensation restrictions on banks not in the TARP program whose pay systems encourage too much risk. How much risk is too much and who determines that remain important questions.

The expected move to extend the pay restrictions beyond the life of the TARP involvement in the firms raises some important questions. Are restrictions that outlive TARP money in the firms consistent with the agreements the institutions made originally with the government? Will there be any sunset whatsoever on the proposed restrictions? Where GM is concerned, will the company emerging from bankruptcy be considered a "new" company?

To the extent the new guidelines would reach into companies who have not received TARP funds, it is legitimate to ask the question as to whether these are a legitimate shareholder's rights issues or an overreach by federal regulators into areas best left to the executive suite and the boardroon.

Since there are very few facts available and only rumors, Financial Reform Watch will reserve judgment until the Treasury releases the new rules, however, there is much to ponder in the meantime.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Investors will have to wait longer than expected for the Legacy Loans Program (LLP), the FDIC half of the Public Private Investment Program (PPIP) to relieve banks of their troubled assets. The LLP pilot, which the FDIC had originally planned to launch in June, will now be postponed indefinitely. In its place, however, the FDIC plans to “test the funding mechanism contemplated by the LLP” by selling receivership assets. The FDIC says it will draw “upon concepts successfully employed by the Resolution Trust Corporation in the 1990s, which routinely assisted in the financing of asset sales through responsible use of leverage.” The FDIC says it will “solicit bids for this sale of receivership assets in July.”

While FDIC Chairman Sheila Bair said the FDIC will continue to work on developing the legacy loans program in order to “offer it in the future,” she explained the reason for the postponement was that banks lately have been raising capital without it, reflecting “renewed investor confidence in our banking system.” She went on to say, “As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled asset sales as part of our larger efforts to strengthen the banking sector.”

There was no mention whether or not the Legacy Securities Program, which is managed by the Federal Reserve and Treasury, would be delayed. One could reasonably guess, reading between the lines, that banks have been less than enthusiastic about discounting and selling loans through the LLP.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link