WASHINGTON -- Regulators and investor advocates voiced support Tuesday for a proposal that addresses consumer protection and would bring investment funds under government supervision as part of Congress' efforts to revamp the U.S. financial rule book.
Republicans objected to key elements of the plan and said the Democrats crammed too many complex topics into one hearing of the House Financial Services Committee.
The draft legislation by Rep. Paul Kanjorski, a Pennsylvania Democrat, closely tracks the Obama administration's proposals for investor protection and bringing hedge funds and other private pools of capital under government supervision.
The legislation would give the Securities and Exchange Commission the authority to ban clauses in contracts that investors sign with their brokers that mandate arbitration to resolve disputes and exclude court action. That "could substantially increase dispute-resolution costs for investors and compliance costs for firms," said Rep. Spencer Bachus of Alabama, the panel's senior Republican.
In addition, Bachus said, the proposal doesn't go far enough to restructure the SEC to prevent another breakdown like the agency's failure to uncover Bernard Madoff's massive fraud scheme over nearly two decades.
But Denise Voigt Crawford, the president of the North American Association Securities Administrators Association — which represents state securities regulators — said the current arbitration process involving panels with industry representatives shouldn't be forced on investors.
"I think that investors want choices," she said. "They have no options."
Kanjorski's proposal also would put stockbrokers and investment advisers providing services to retail investors under the same standards of conduct.
"Billionaires on Wall Street have had their day, egged on by a culture of greed, deregulation and a survival-of-the-fittest attitude that ignored the harsh effects those things inflict upon larger society," Kanjorski said.
Uniform standards for brokers and investment advisers were endorsed by Crawford and Mercer Bullard, a former SEC attorney and investor advocate who also appeared before the panel.
Kanjorski's legislation also would put private pools of capital — hedge funds, private equity and venture capital funds — under government supervision by requiring they register with the SEC. That would open their books to federal inspection and they would be subject to disclosure requirements to investors and creditors.
During the financial crisis, private funds had to come up with money when their capital was put at risk, contributing to the strains on the financial markets, regulators have said.
Expected to testify later at the hearing were representatives of the hedge fund, private equity and venture capital industries.
The draft legislation also proposes creation of a national insurance office, which would collect data on the industry and advise the new systemic risk regulator — possibly the Federal Reserve— on possible threats.
Big insurance companies have been lobbying for Congress to free them from a web of state rules by establishing a federal regulator and letting the companies choose which rules to follow.
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