Treasury Rolls out Second Phase of Consumer Protection Legislation Under Reform Plan
| Date Posted: July 13, 2009 |
The Treasury Department proposed a bill Friday to give the Securities and Exchange Commission power to harmonize the regulation of broker-dealers and registered investment advisers. Under the legislation, the SEC could write new rules imposing a uniform standard of conduct on "all brokers, dealers and investment advisers" in providing advice to clients, that require them "to act solely in the interest of the customer or client" without regard to their own financial interest. Such rules would amount to a new fiduciary duty for broker-dealers.
The proposal is part of the broad financial market reform package the Obama administration unveiled in June that would also create a new consumer protection agency with powers over a broad range of institutions; would place financial and banking regulation under the watch of the Federal Reserve and abolish divisions among banking regulators in an effort to eliminate "regulatory arbitrage."
The legislation Treasury proposed Friday would also give the SEC powers to regulate or prohibit any compensation practices that the Commission believes might interfere with the brokers' and advisers' fiduciary duties. A treasury official said during a conference call, "I think if you look at the various side payments in various contexts of the securities world, they are difficult for investors to police and they can raise significant conflict questions." He said the bill would give the SEC "broad authority to define those kinds of practices," citing as an example higher compensation given to brokers for the sale of in-house products over products from other institutions.
The proposal would also allow the SEC to establish a whistleblower fund from penalties it collects in enforcement actions and require securities professionals to disclose costs and risks of investing in mutual funds before the sale is completed.
To view the full text of the legislation, go to http://www.treas.gov/press/releases/docs/tg205071009.pdf.
More information about this topic is available in Thompson Publishing Group's Money Manager's Compliance Guide. c2009.
The proposal is part of the broad financial market reform package the Obama administration unveiled in June that would also create a new consumer protection agency with powers over a broad range of institutions; would place financial and banking regulation under the watch of the Federal Reserve and abolish divisions among banking regulators in an effort to eliminate "regulatory arbitrage."
The legislation Treasury proposed Friday would also give the SEC powers to regulate or prohibit any compensation practices that the Commission believes might interfere with the brokers' and advisers' fiduciary duties. A treasury official said during a conference call, "I think if you look at the various side payments in various contexts of the securities world, they are difficult for investors to police and they can raise significant conflict questions." He said the bill would give the SEC "broad authority to define those kinds of practices," citing as an example higher compensation given to brokers for the sale of in-house products over products from other institutions.
The proposal would also allow the SEC to establish a whistleblower fund from penalties it collects in enforcement actions and require securities professionals to disclose costs and risks of investing in mutual funds before the sale is completed.
To view the full text of the legislation, go to http://www.treas.gov/press/releases/docs/tg205071009.pdf.
More information about this topic is available in Thompson Publishing Group's Money Manager's Compliance Guide. c2009.
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