June 15, 2010
Chairman Christopher Dodd
Chairman Barney Frank
Americans for Financial Reform supports strong investor protections in the final conference report on H.R. 4173
Dear Conferee,
On behalf of Americans for Financial Reform (AFR), an unprecedented coalition of more than 250 national, state and local groups that have come together to reform the financial industry, I am writing to highlight our priorities with respect to investor protection and corporate governance reforms in the Wall Street reform bill. Members of our coalition include consumer, civil rights, investor, retiree, community, labor, religious and business groups as well as Nobel Prize-winning economists.
It is our understanding that the investor protection and corporate governance provisions may be considered by conferees as early as Wednesday of this week. Below are AFRs priorities for those issues where there are differences between the House and Senate bills on issues of importance to retail investors.
Impose a Fiduciary Duty on Brokers (retain House language, eliminate Senate provision)
Brokers are free to offer the same services as investment advisers without the same obligation to act in the best interests of their clients, leaving investors vulnerable to misleading and abusive practices. The House bill addresses this problem by requiring the Securities and Exchange Commission to (SEC) adopt rules holding brokers to a fiduciary duty when they give investment advice to retail investors. The Senate bill requires the SEC to restudy an issue it has already studied extensively and denies it the authority it would need to raise the standard for brokers, delaying indefinitely any solution to a known and pressing problem. AFR supports inclusion of the House language in the final bill.
Create an Office of Investor Advocate within the SEC (retain Senate language, eliminate House ombudsman provision)
The voices of investors can be all too easily drowned out by industry in debates over important policies that affect their interests. The Senate bill would create a powerful new Office of Investor Advocate within the SEC to ensure that investor interests are given due consideration in SEC policy debates. In addition, the office would help investors resolve problems that may arise in their dealings with the agency. A House ombudsman provision provides the office with less authority and, because it is not focused on helping investors, could be hijacked by industry interests, becoming another back-door way for industry to influence the agency.
Improve Investor Disclosures (Retain Senate language on pre-sale disclosure and financial literacy study)
Though both the House and Senate bills include provisions authorizing the SEC to adopt pre-sale disclosure rules, the Senate language is preferable. Particularly when combined with language in the Senate bill requiring a study of investor financial literacy and information needs, it provides the framework for significant improvements in investor disclosures. AFR also supports the House bill provision that authorizes the SEC to use monies in the Investor Protection Fund it maintains to fund investor education initiatives. The Senate bill does not contain a similar authorization.
Strengthen SEC Enforcement Tools (Retain House provisions on SEC authority, Senate language on self-funding)
The House bill includes a number of provisions missing from the Senate bill to enhance the SEC’s enforcement authority. These include provisions to provide the agency with clear authority to go after those who aid and abet violations, for example, and to prevent bad actors from evading regulators by operating outside U.S. borders. The Senate bill provides a self-funding mechanism to ensure that the agency has adequate resources. Together, these provisions would provide the agency with the authority and resources it needs to fulfill its investor protection mandate.
Maintain protections against accounting fraud (Retain Senate silence on Section 404(b) of the Sarbanes-Oxley Act, eliminate House language)
In a major set-back for investors, the House bill weakened existing protections against accounting fraud at roughly half of all public companies. Ignoring extensive evidence that the requirements are both affordable and effective, the House bill would permanently exempt companies with under $75 million in market capitalization from Section 404(b) of the Sarbanes-Oxley Act. It would be unfortunate if the investor protections adopted in the wake of the last major financial crisis were weakened in a bill that is designed to respond to the current financial crisis.
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By combining the best aspects of the House and Senate bills, Congress could strengthen investor protections and enhance the effectiveness of the Securities and Exchange Commission (SEC). We urge you to do so.
For more information, please contact Maureen Thompson at 703-276-3251 or mthompson@hastinggroup.com.
Sincerely,
Americans for Financial Reform