June 17, 2009

Details of the Administration’s Financial Reform Plans Released

While the official announcement of the Administration’s proposals for financial reform is slated for later today, copies of a near-final draft of the white paper outlining the proposals have already been circulating to members of Congress and to the major news organizations. Many thanks to Marty Dunn of O’Melveny & Myers for pointing this document out to me last night.

The SEC would seem to fare well under the Administration’s proposals. The white paper indicates that the SEC and the CFTC would maintain their current authorities and responsibilities as market regulators, while the statutory and regulatory frameworks for futures and securities would be harmonized. As previously discussed, the SEC would oversee the registration of advisers of all hedge funds and other private capital pools. Regulation of securitizations and over-the-counter derivatives will be accomplished through a “coherent and coordinated” regulatory framework.

Further, the white paper calls for expanded authority for the SEC to promote transparency in investor disclosures, and states that the SEC should be provided with new tools to increase fairness for investors, through the establishment of a fiduciary duty for broker-dealers offering investment advice and harmonizing the regulation of investment advisers and broker-dealers.

Among the new regulators proposed are:

– a Financial Services Oversight Council (FSOC), chaired by the Treasury and composed of prudential regulators tasked with identifying emerging systemic risks (replacing the President’s Working Group on Financial Markets);

– a National Bank Supervisor with the authority to supervise all federally chartered banks;

– an Office of National Insurance within the Treasury Department; and

– a Consumer Financial Protection Agency, tasked with protecting consumers from “unfair, deceptive and abusive practices.”

The FSOC would also establish the Financial Consumer Coordinating Council, with membership including federal and state consumer protection agencies, and a permanent role for the SEC’s newly created Investor Advisory Committee.

Seemingly back “on the front burner” with the white paper proposals is the issue of IFRS, with the report recommending that accounting standard setters “make substantial progress by the end of 2009 toward development of a single set of high quality global accounting standards.”

As widely expected, the Federal Reserve would gain more authority under these proposals, including authority over “Tier 1 Financial Holding Companies” and oversight over the payment, clearing and settlement systems.

Whether any or all of these proposals move forward is tough to say at this point, but at least today we now have a much clearer picture of the complete package of reforms under consideration.

New FINRA Conflict of Interest Rules

Just in time for hopefully an uptick in offering activity, the SEC has approved changes to NASD Rule 2720, which governs underwriter conflicts of interest in public offerings. These changes are meant to modernize and simplify the conflict of interest requirements, and provide some additional flexibility in connection with public offerings. The amendments to Rule 2720 will be implemented within 30 days after FINRA issues a Regulatory Notice (which will be issued some time within 60 days of the SEC’s approval).

Monitoring Activist Activity

During this podcast, Mary Beth Kissane of Walek Associates analyzes how companies should be monitoring shareholder activist activity, including:

– How do hedge funds have such a solid activism record?
– What should companies do to prepare for an activist attack?
– Who within the company owns the “monitoring activists” task?
– Who within the company should be dealing with the financial press?
– Who is the “financial press” these days? Bloggers included? Social media?

– Dave Lynn