7.22.2009 SEC Chairman Mary Schapiro testified before the U.S. House of Representatives Committee on Financial Services about the regulatory perspectives of the Obama Administration’s financial regulatory reform proposals. The Chairman said that the Administration’s proposals do much to strengthen the SEC and improve investor protection in the process, as well as to help to restore confidence in the soundness and integrity of our financial system as a whole. The Chairman focused on those proposals that “most directly bear on the SEC’s regulatory mission”:

  • OTC Derivatives: The Chairman stated that the primary responsibility for all securities-related OTC derivatives should remain with the SEC and that responsibility for all other OTC derivatives, including derivatives related to interest rates, foreign exchange, commodities, energy, and metals, should rest with the CFTC. The Chairman proposes bringing securities-related OTC derivatives under the same umbrella of oversight as the related, underlying securities markets in a relatively straightforward manner with little need to “reinvent the wheel.”
  • Harmonization of Securities and Futures Regulation: The Chairman stressed that the SEC and the CFTC have been working together for years, and the SEC is working with the CFTC staff to develop a coordinated approach to determining the differences in the agencies’ oversight and regulation.
  • Hedge Funds: The Chairman addressed the various regulatory gaps with hedge funds and other private funds and stated her support of the portion of the Administration’s White Paper that requires advisers to hedge funds and other private pools of capital to register with the SEC under the Investment Advisers Act of 1940.
  • Broker-Dealers and Investment Advisers: The Chairman stated her support for the standard contained in Investor Protection Act of 2009 that would enable the SEC to promulgate rules to provide all broker-dealers and investment advisers providing investment advice to retail customers to act solely in the interest of their customers or clients without regard to the financial or other interests of the financial service professional. The Chairman also stated her support for portions of the bill that call for the SEC to facilitate disclosures to investors and prohibiting activities that are contrary to the public interest.
  • SEC Enforcement: The Chairman voiced her support for the Administration’s proposals in the White Paper and the Investor Protection Act of 2009 to enhance the SEC’s enforcement powers, including the SEC’s expanded authority to pay whistleblowers who bring significant information to the SEC, to pursue expanded sanctions against wrongdoers, and to increase potential grounds for seeking sanctions.
  • Credit Rating Agencies: The Chairman stated her belief that legislation to require mandatory registration by credit rating agencies would be a significant step forward in making sure that this sector of the market is brought under regulatory oversight without the danger that some credit rating agencies may fail to register in order to avoid regulation.
  • The Need to Identify and Address Emerging Systemic Risks That Pose a Threat to the Stability of our Financial System: The Chairman stated that a multi-disciplinary group of financial regulators can play a critical role in assessing emerging systemic risks by setting standards for liquidity, capital and risk management practices. The Chairman stated that a systemic risk regulator should play a critical role in this process, and it is vital that its role be complemented by the creation of a strong and robust systemic risk council of primary financial regulators.

Click http://www.sec.gov/news/testimony/2009/ts072209mls.htm to access Chairman Schapiro’s testimony.