[StBernard] Frank Announces House Offer on Investor Protection, Executive Compensation, Fed and Emergency Liquidity Provisions

[Westley Annis]

Frank Announces House Offer on Investor Protection, Executive Compensation,
Fed and Emergency Liquidity Provisions 

 

Washington, DC – Chairman Frank, on behalf of the House conferees, released
the House offer
<http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/h
ouse_offers_to_base_text_page061410.html>  on the titles listed below.  The
issues will be subject to debate when the House-Senate Conference Committee
convenes in room 2128 Rayburn at 11:00 a.m. tomorrow.

 

Due to high demand and limited seating in the committee room, media will be
limited to one seat per news organization.  To request a seat, please
contact Elizabeth Esfahani at elizabeth.esfahani at mail.house.gov. All media
must be credentialed by the media galleries. 

 

            The issues for tomorrow’s offer:

 

*                    Title 9, subtitles A, B, F, H, I and J of base text
<http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/T
ITLEIX_INVESTORPROTECTION.pdf> : Investor protection/regulatory improvements

*                    Title 9, subtitles E and G of base text
<http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/T
ITLEIX_EXECCOMP.pdf> : Executive compensation/corporate governance

*                    Title 11 of base text
<http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/T
ITLEXI_OFFER_FED.pdf> : Fed audit and governance, and emergency liquidity
provisions

 

 

Title 9, subtitles A, B, F, H, I and J of base text: Investor
protection/regulatory improvements
<http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/T
ITLEIX_INVESTORPROTECTION.pdf> 

 

The House proposes the following amendments to the base text:

 

*                    Strike and replace the Senate provision requiring the
SEC to study the standards of care applicable to broker-dealers and
investment advisers.  (Senate § 913, p. 1051)  Replace it with the House
provision requiring the SEC to impose the fiduciary duty on broker-dealers
providing investment advice to retail customers.  (House § 7103, p. 1276)

 

*                    Add the House provision requiring the SEC to study the
need for enhanced examination and enforcement resources for investment
advisers.  (House § 7107, p. 1289)  

 

*                    Amend the Senate provision on the Investor Advocate’s
compensation so that it is comparable to other senior executive positions,
rather than equal to the highest rate of pay for the Senior Executive
Service (Senate § 914, p. 1061)   

 

*                    Amend the Senate provisions on streamlining of SRO rule
filing procedures so that the SEC has the option to disapprove proposed
rules within the applicable deadline, not just approve the rules or
institute hearings on them.  (Senate § 915, p. 1070 et seq.) 

 

*                    Amend the Senate provision on whistleblower incentives
so that –   

 

o       the type of original information supporting an award must have
“significantly contributed” to a successful enforcement action (Senate §
922, p. 1090) and may not be “based on” allegations in judicial proceedings
or news media;

 

o       mandatory minimum awards apply only to SEC enforcement actions, not
to amounts obtained in related actions brought by other enforcement agencies
(Senate § 922, p. 1091);

 

o       the standard applicable to a whistleblower appeal of an award is
review for gross abuse of discretion by the SEC (Senate §  922, p. 1095);

 

o       the confidentiality provision is more narrow, covering just
information that could reasonably be expected to reveal the identity of the
whistleblower, not all information provided to the SEC by the whistleblower
(Senate § 922, p. 1102).

 

*                    Amend the Senate provision on production of documents
by foreign auditing firms to broaden and clarify the type of work that
triggers the obligation to produce work papers, and to ensure that foreign
firms appoint an agent not only for service of process, but also for SEC
document requests.  (Senate § 929J, p. 1135-1137)

 

*                    Amend the Senate provisions to make clear that
recklessness satisfies the intent standard for aiding and abetting liability
in SEC enforcement actions under the Securities Act of 1933 and the
Investment Company Act.  (Senate § 929M, p. 1142).  

 

*                    Add the House provision clarifying that recklessness
satisfies the intent standard for aiding and abetting liability in SEC
enforcement actions under the Securities Exchange Act of 1934.  (House §
7215, p. 1332)

 

*                    Amend the Senate provisions to make clear that
recklessness satisfies the intent standard for aiding and abetting liability
in SEC enforcement actions seeking penalties under the Investment Advisers
Act.  (Senate § 929N, p. 1142)

 

*                    Add the House provision, as drafted in the Reed
amendment, authorizing the SEC to seek civil penalties in cease and desist
proceedings against any person, not only registrants.  (House § 7211, p.
1317; Reed § 922(b))

 

*                    Add the House provision, as drafted in the Reed
amendment, extending the SEC’s enforcement jurisdiction to cover significant
steps in furtherance of a violation, even if the securities transactions
occur outside the U.S., and to cover foreign conduct that has a foreseeable
substantial effect with the U.S. (House § 7216, p. 1332; Reed § 922(d))

 

*                    Add the House provision, as drafted in the Reed
amendment, clarifying that control person liability under the Section 20(a)
of the Securities Exchange Act applies in SEC enforcement actions, not only
in private actions.  (House § 7220, p. 7220; Reed § 922(e))

 

*                    Add the House provision, as drafted in the Reed
amendment, expanding recordkeeping and examination requirements for
custodians who hold property of clients of investment companies or
investment advisers.  (House § 7106, p. 1287; Reed 993(a))

 

*                    Add the House provision, as drafted in the Reed
amendment, giving the SEC authority to examine all records of investment
companies.  (House § 7219, p. 1338; Reed § 994(a))

 

*                    Add the House provision, as drafted in the Reed
amendment, clarifying that the SEC has authority under the Securities
Exchange Act, the Investment Company Act, and the Investment Advisers Act to
conduct surveillance and risk assessment of the securities markets.  (House
§ 7218, p. 1336; Reed § 994(c))

 

*                    Add the House provision, as drafted in the Reed
amendment, giving the SEC authority to adopt rules that would require more
timely reporting when a person acquires more than 5% ownership interest in
an issuer.  (House § 7105, p. 1285; Reed § 995(a))  

 

*                    Add the House provision, as drafted in the Reed
amendment, enabling the SEC to clarify the types of relationships that
compromise a person’s independence for purposes of serving as a mutual fund
director.  (House § 7412, p. 1369; Reed § 995(c))

 

*                    Add the House provision, as drafted in the Reed
amendment, extending the fingerprinting requirement to personnel of national
securities exchanges and national securities associations.  (House § 7403,
p. 1350; Reed 995(e))

 

*                    Add the House provision that invalidates any
contractual provision requiring persons to waive compliance with any
self-regulatory organization rules.  (House § 7404, p. 1351)  

 

*                    Add the House provision requiring the SEC to complete
investigations and examinations within certain time frames, subject to
exceptions for complex cases.  (House § 7209, p. 1313)

 

*                    Add the House provision increasing the assessments on
SIPC members from $150 annually to .02% of the member’s gross revenues
derived from the securities business.  (House § 7501, p. 1388)

 

*                    Add the House provision increasing penalties for fraud
under SIPA from $50,000 to $250,000.  (House § 7507, p. 1393)

 

*                    Add the House provision establishing civil and criminal
penalties against any person who misrepresents membership in SIPC or who
falsely claims that an account is protected under SIPA.  (House § 7508, p.
1393)

 

*                    Add the House provision enhancing notice to missing
security holders.  (House § 7421, p. 1381) 

 

*                    Add the House provision requiring daily reporting on
short sales, prohibiting manipulative short sales, and requiring
notification to customers that they may elect not to allow their securities
to be used in connection with short sales and that the broker may receive
compensation if the shares are so used.  (House § 7422, p. 1383) 

 

*                    Add the House provision requiring the SEC to hire a
consultant to study the SEC’s operations and the possible need for
comprehensive reform of the agency.  (House § 7304, p. 1344)

 

*                    Add the House provision requiring GAO to study issues
surrounding employees who leave the SEC and become employed in the
securities industry.  (House § 7414, p. 1370) 

 

*                    Strike and replace the Senate’s provisions in Subtitle
H establishing MSRB registration and oversight of municipal advisers.
Replace them with the House provisions, which (a) establish SEC registration
and oversight of municipal advisers, (b) impose a fiduciary duty on
municipal advisers, and (c) establish greater independence of the MSRB.
(House § 7801, § 7802, § 7803, p. 1429 et seq., and § 7411, p. 1366)

 

*                    Strike the Senate provision deferring by 180 days the
effective date of the PCAOB’s right to assess fees on broker-dealers, to
reflect the PCAOB’s calendar fiscal year.  (Senate § 982, p. 1295, 1293)

 

*                    Add a provision requiring agency heads, including the
Chair of the SEC, to address deficiencies identified in any Inspector
General report, or certify to both Houses of Congress that no action is
necessary.  (House § 3303) 

 

*                    Amend the Senate provision on material loss reports by
increasing the dollar thresholds that trigger the reporting obligation.
(Senate § 987, p. 1311)

 

*                    Add the House provisions that exempt small issuers
(less than $75 million in market capitalization) from the requirements of
Sarbanes-Oxley Section 404(b) (House § 7606, p. 1417), and require the
following studies:

 

o       An SEC study of ways to reduce the burdens of compliance with
Section 404(b) on companies with $75 million to $250,000 million in market
capitalization (House § 7606, p. 1417);

 

o       An SEC study on the use of revenue as a test for defining smaller
reporting companies (House § 7416, p. 1374); and

 

o       A GAO study on reducing the Sarbanes-Oxley compliance burdens and
whether reducing those burdens would encourage listings on exchanges (House
§ 7415, 1372).

 

 

Title 9, subtitles E and G of base text: Executive compensation/corporate
governance
<http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/T
ITLEIX_EXECCOMP.pdf> 

 

The House proposes the following amendments to the Base text: 

 

*                    Add Shareholder Vote on so-called Golden Parachute
retirement packages.  House and Senate agree on annual, non-binding,
shareholder vote on executive compensation; Senate does not include House
shareholder vote on so-called golden parachutes.

 

*                    Add House provision on Enhanced Compensation Oversight
for Financial Industry.  House requires all Federal financial regulators to
issue and enforce joint compensation rules specifically applicable to all
financial institutions with a Federal regulator.  

 

*                    Add House provision that SEC require that independence
standards applied to compensation committee consultants are competitively
neutral and treat large and small consultants equally.

 

*                    Add House provision that SEC require institutional
investors to disclose their voting in compensation-related voting.

 

 

Title 11 of base text: Fed audit and governance, and emergency liquidity
provisions
<http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/T
ITLEXI_OFFER_FED.pdf> 

 

The House proposes the following amendments to the Base text: 

 

*                    Amend Senate provision regarding Federal Reserve 13(3)
lending to insert requirement from House-passed bill that the Federal
Reserve Board and Secretary of Treasury have reasonable cause to believe
that the security or other collateral policies for any emergency lending
program or facility provide 99% confidence that funds disbursed under the
facility or program and interest will be repaid. (Senate bill §1101, Page
1724, lines 16-19).

 

*                    Amend Senate Provision regarding ongoing Federal
Reserve audit requirements to add discount window and open market
transactions to items to be reviewed by GAO.   (Senate bill § 1102, Page
1730 line 7 –  Page 1733, line 23).

 

*                    Amend Senate Provisions requiring public disclosure of
emergency credit facilities information to also require public disclosure of
Federal Reserve open market operations and discount window transactions
three years after the transactions have been entered into. (Senate bill §
1103, Page 1735, after line 17).

 

*                    Strike Senate provisions regarding emergency liquidity
guaranties and replace with House provisions on emergency liquidity
guaranties.  (Replace Senate bill §§ 1104-1106, Page 1735, line 18 – Page
1751, line 7, with House bill §§§ 1109-1111).

 

*                    Strike Senate Provision on appointment of Federal
Reserve Bank of New York President and limiting eligibility to vote for or
serve as a Federal Reserve Bank director, and replace with provision
removing the authority of the member banks’ representatives on each regional
board of directors (Class A directors) from appointing/voting for the
President of the Reserve Bank (Senate bill § 1107, Page1751, line 20 – 1752,
line 6).

 

*                    Add House Provision on no financial stability authority
in the bill being delegated to Federal Reserve Bank Presidents to Senate
Provision on no delegation of supervisory policymaking to reserve banks.
(House bill § 1114, Page 132, line 3-14; Senate bill § 1108, Page 1754, line
17).

 

*                    Add House Provision adding new restrictions to the
Federal Reserve’s foreign currency swap authority (House Bill, §1702, Page
517, line 1-15).  

 

 

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