The House Financial Services Committee has marked up a set of bills that would significantly weaken regulatory safeguards for investors. If these measures became law, long and painful experience suggests they would cause capital to move from sound and regulated investments into dangerous and unregulated investments.
The rules the committee voted to roll back today include basic reporting requirements and anti-fraud protections. By exempting certain markets and securities issuers from such rules, Congress would not be streamlining markets, but merely denying investors the knowledge they need to invest efficiently and wisely. The net effect, as we said in a joint letter, would be to “weaken regulatory oversight, reduce transparency, and generally undermine the regulatory framework that helped make America’s financial markets the deepest, most vibrant markets in the world.”
The committee also voted for a bill that would exempt investment advisers from many basic investor protection requirements. This legislation would permit private equity and hedge funds to evade SEC examinations and distribute misleading and even fraudulent advertising materials. In addition, it would exempt funds from having to provide independent confirmation that they own the securities they claim to own – a change that could open the door to the next Madoff-style Ponzi scheme. Yet another bill in today’s package would impose crippling new procedural obligations on the Securities and Exchange Commission and grant Wall Street firms new legal powers to overturn SEC rules, in a transparent move to make forceful agency action impossible.
AFR urges Congress to recognize the value of trust and transparency in our capital markets, and to reject all these ill-considered measures if they come to the floor.