NAIFA GovWatch

Dodd Releases New Draft of Financial Services Overhaul Legislation

Issue: Financial Services Regulatory Reform

Date: March 17, 2010

Action Taken: Senate Banking Committee Chairman Christopher Dodd (D-CT) on Monday unveiled the latest iteration of his comprehensive proposal to reform the oversight of the financial services sector. The draft bill—entitled the Restoring American Financial Stability Act—was originally released in November of last year and included many provisions of interest and concern to NAIFA.

One of the most troublesome sections of the original Dodd draft had been Section 913, which would have required all broker-dealers (and their registered representatives) to be subject to all of the requirements of the Investment Advisers Act of 1940 – including the Act’s fiduciary duty. That requirement would have been in addition to the suitability requirements imposed on broker-dealers under the Securities and Exchange Act of 1934. NAIFA rejected such a radical and untested approach and instead supported an alternative proposal by Senators Tim Johnson (D-SD) and Mike Crapo (R-ID) to comprehensively study the regulatory environment surrounding investment advisers and broker-dealers. Following the study, the SEC would be directed to write rules to address any gaps or overlap in regulation that are found to be harmful to investors.

NAIFA is pleased the draft released by Chairman Dodd yesterday replaced the original Section 913 with the Johnson/Crapo study and directed rulemaking approach. The change reflects NAIFA’s vigorous efforts to convince Senators to take a more objective and fact- based approach to such a complex issue.

Other major provisions of the bill of interest to NAIFA are:

The establishment of an Investor Advisory Committee to advise the SEC on issues relating to securities products, trading strategies, fee structures and disclosure, as well as investor-directed initiatives.
The establishment of an Office of Investor Advocate at the SEC.
The establishment of an “Office of National Insurance” to be a source of expertise on insurance (except health insurance) within the federal government. The ONI would not be a new insurance regulator.
The establishment of a new “Bureau of Consumer Financial Protection” within the Federal Reserve. The language of the bill attempts to exclude the “business of insurance” from the scope of the Bureau. Persons regulated by the SEC and state securities regulators are clearly exempt from the Bureau’s authority.
The establishment of a federal grant program to assist the states in cracking down on the use of misleading and fraudulent marketing practices aimed at seniors.

For a complete analysis of the Restoring American Financial Stability Act, prepared by NAIFA’s outside counsel at Steptoe & Johnson, click here.

Next Steps: Chairman Dodd has said that the Banking Committee will take up his bill beginning on March 22. The length of time it will take to “markup” such a comprehensive bill is unclear. However, once the Senate process is complete, they must then work to resolve the differences with the House version of the bill which passed in December. With major sticking points in both pieces of legislation, the reconciliation process is not expected to be an easy one. NAIFA will continue to work vigorously on this issue, and will keep you posted on any developments.

NAIFA Staff Contact: Jill Edwards, Assistant Vice President – Federal Government Relations.

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