The House Financial Services Committee recently passed the Investor Protection Act of 2009, recommending it for consideration by the full House. The Investor Protection Act, introduced by Rep. Paul Kanjorski (D-Pa.), is aimed at modernizing and tightening securities laws in the United States and is seen by many as a response to the reported abuses on Wall Street and market turmoil of last year.
The Investor Protection Act seeks to increase the SEC’s enforcement and regulatory power. Specifically, the Investor Protection Act’s proposals include: (1) authorizing the SEC to promulgate rules requiring pre-sale disclosure to purchasers of registered investment companies; (2) requiring broker-dealers that provide investment advice to retail customers to be subject to the same fiduciary duties as advisers under the Advisers Act; (3) giving the SEC authority to compensate whistleblowers who report securities law violations; (4) clarifying that the SEC has regulatory authority over securities lending; (5) charging investment advisers a fee designed to help cover the cost of inspections; and (6) giving the SEC the ability to prohibit, or impose conditions or limitations on, the use of mandatory arbitration clauses in agreements between broker-dealers and their customers. The Investor Protection Act also proposes to double the authorized funding for the SEC over five years.
Industry has responded to the Investor Protection Act by voicing concerns about the increased possibility of enforcement actions and private lawsuits that advisers and broker-dealers will face as a result of certain of the Investor Protection Act’s proposals. There is also debate over the fairness of the new pre-sale disclosure requirements because they affect only registered investment companies and not other types of investments (such as annuities). The Investor Protection Act, however, represents the current political climate in Congress. In fact, Senate Banking Committee Chairman Christopher Dodd has introduced a bill in the Senate that includes similar provisions to the Investor Protection Act. The full House is expected to vote on the Investor Protection Act in December. A copy of the Investor Protection Act is available at: http://thomas.loc. gov/home/gpoxmlc111/h3817_ih.xml.