On Thursday, Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, released discussion drafts of the following legislation to "address many of the shortcomings and loopholes laid bare by the current financial crisis":
1) Investor Protection Act of 2009 - Given the "deep deficiencies in our existing securities regulatory structure," and the "perils of deregulation," the Investor Protection Act would "right these wrongs" by reforming the Securities and Exchange Commission (SEC) to "strengthen its powers, better protect investors, and efficiently and effectively regulate our securities markets." In particular, the draft legislation would, among other things:
- Double the authorized funding for the SEC over 5 years;
- Require the SEC to hire an independent consultant to examine its internal operations, structure, funding, and need for comprehensive reform of the SEC, self-regulatory organizations, and other entities relevant to the regulation of securities and the protection of securities investors;
- Require the SEC, the Financial Accounting Standards Board and the Public Company Accounting Oversight Board to provide testimony to the House Financial Services Committee annually, for a period of 5 years, on their respective efforts to reduce complexity in financial reporting;
- Amend the Securities Act of 1933 to grant the SEC the authority to impose certain civil monetary penalties on a person if it finds, on the record after notice and opportunity for hearing, that a person is violating, has violated or is or was the cause of a violation of the Securities Act;
- Amend the Securities and Exchange Act of 1934 to, among other things:
- Establish an Investor Advisory Committee to advise and consult with the SEC on (i) regulatory priorities and issues regarding new products, trading strategies, fee structures and the effectiveness of disclosures; (ii) initiatives to protect investor interest; and (iii) initiatives to promote investor confidence in the integrity of the marketplace;
- Create a whistleblower "bounty program" to identify wrongdoing in the securities markets and reward individuals whose tips lead to successful enforcement actions; and
- Enable the SEC to bar mandatory arbitration clauses in customer contracts;
- Increase cash limit protections for customers, and the penalties for prohibited acts, under the Securities Investor Protection Act of 1970.
2) Private Fund Investment Advisers Registration Act of 2009- This legislation would amend the Investment Advisers Act of 1940 to "require advisers of certain unregistered investment companies to register with and provide information to the SEC, and for other purposes.” In addition, the proposed legislation would exempt advisers to venture capital funds from having to register with the SEC, but would subject them to reporting requirements.
The proposed legislation would authorize the SEC to require any registered investment adviser to file reports regarding the funds it advises, which would include the following information:
- The amount of assets under management;
- The use of leverage (including off-balance sheet leverage);
- Counterparty credit risk exposure;
- Trading and investment positions;
- Trading practices; and
- Any other information that the SEC determines is necessary or appropriate in the public interest and for the protection of investors or for the assessment of systematic risk.
All information must be maintained for the period of time prescribed by the SEC and will be kept confidential, except that the information may be shared with Board of Governors of the Federal Reserve System or any other entity the SEC determines to have systematic risk responsibility. Investment advisers may also be required to share such information as the SEC deems necessary with investors, prospective investors, counterparties and creditors of any funds they advise.
The legislation is similar to the Hedge Fund Advisers Registration Act of 2009, proposed by the Obama Administration in July, which would also require advisers to register with, and disclose significant information to, the SEC.
3) Federal Insurance Office Act of 2009 - In light of "the lack of expertise within the federal government regarding the [insurance] industry, especially during the collapse of American International Group and last year's turmoil in the bond insurance markets," the legislation would establish an Office of National Insurance within the Treasury Department to advise the Secretary of the Treasury on "major domestic and prudential international insurance policy issues" and perform, among others, the following primary functions:
- Monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system;
- Coordinate federal efforts and establish federal policy on prudential aspects of international insurance matters; and
- Consult with the states regarding insurance matters of national importance and prudential insurance matters of international importance.
The authority of the Office of National Insurance would extend to all lines of insurance except health insurance, however, it would not preempt any state insurance measure that governs any insurer’s rates, premiums, underwriting or sales practices, or state coverage requirements for insurance, or affect the preemption of any state insurance measure otherwise inconsistent with and preempted by federal law.
Earlier this summer, as part of the Obama Administration's regulatory reform proposals, an Office of National Insurance was proposed to similarly (i) address systemic risks posed to the financial system by the insurance industry, (ii) enhance consumer protections and address any gaps and problems that exist under the current system, and (iii) increase consistency in the regulatory treatment of insurance.