On May 20, 2010, the Senate passed the Restoring American Financial Stability Act of 2010. Similar to a bill passed by the House of Representatives in 2009, among other provisions, the Act would:

  • establish a Financial Services Oversight Council comprised primarily of the heads of various financial regulatory entities that would monitor, identify and address threats to the stability of the U.S. financial markets, and together with the Federal Reserve or other applicable federal regulator, impose stricter standards and safeguards on any financial company, activity or practice that poses a threat to the stability of the markets and require, as a last resort, certain financial companies that pose a grave threat to the stability of the markets to divest some of their holdings;  
  • require the Federal Reserve and other federal banking agencies, subject to the recommendations and modifications of the Financial Services Oversight Council, to prescribe rules (1) prohibiting proprietary trading and sponsoring or investing in hedge funds or private equity funds by insured depository institutions, companies controlling insured depository institutions or that are treated as bank holding companies and subsidiaries of such institutions and companies and (2) imposing additional capital requirements and quantitative limits for nonbank financial companies supervised by the Federal Reserve that engage in proprietary trading or sponsoring or investing in hedge funds and private equity funds;  
  • require investment advisers of certain unregistered investment companies (i.e., 3(c)(1) and 3(c)(7) funds), excluding “venture capital funds” and “private equity funds” as defined by the SEC, to register with and provide information to the SEC;  
  • authorize the self-funding of the SEC;  
  • authorize the SEC to prescribe rules and regulations requiring the inclusion of shareholder-proposed board nominees in issuer proxy solicitations;  
  • permit the SEC to issue rules requiring broker-dealers to provide documents or information to retail investors before they purchase investment products or services;  
  • permit the SEC to limit the use of pre-dispute arbitration provisions in brokerdealer agreements;  
  • subject auditors of broker-dealers to regulation by the Public Company Accounting Oversight Board;  
  • increase the asset threshold for federally-registered investment advisers to $100,000,000;  
  • authorize an increase in the accredited investor financial threshold for natural persons; and
  • require the SEC to conduct studies regarding (1) the effectiveness of, or gaps or overlaps in, legal and regulatory standards of care applicable to brokerdealers and other investment professionals providing services to retail investors (the SEC also would be authorized to prescribe rules and regulations to address any gaps or overlaps identified in the study), (2) the potential impact of eliminating the broker-dealer investment adviser registration exemption, (3) the financial literacy of retail investors and (4) mutual fund advertising.