Comparison of Regulatory Proposals

Side-by-Side Analysis of Financial Regulatory Reform Proposals and CFA Institute Views – 21 May 2010
OBAMA ADMINISTRATION U.S. SENATE U.S. HOUSE OF INVESTORS’ WORKING CFA INSTITUTE VIEW
REPRESENTATIVES GROUP
OTC Derivatives
Other than Eligible Contract No one can enter into a swap All standardized and All standardized and
Participants1, no one can enter unless it is subject to the rules of standardizable derivates standardizable derivatives
into a swap unless it is subject to a registered board of trade should trade on regulated should trade on regulated
the rules of a registered board of exchanges exchanges
trade
Commercial end-users are Exempt from rules if one party is Strictly limit OTC market to Very few structures or firms
exempted from mandatory swap not a swap dealer or major swap truly customized contracts should be exempt to ensure
clearing only if they are hedging participant between highly sophisticated greater transparency for
commercial risks parties, one of which must be investors
a commercial end-user
hedging a business risk
Use of central counterparties CFTC has “expedited rulemaking CFTC may review whether any All standardized and All standardized and
authority” to determine whether swap, or category/class/type of standardizable derivatives standardizable derivatives
swaps must clear centrally, swap should be cleared should clear centrally should clear centrally
CFTC may review whether any
swap, or category/class/type of
swap should be cleared
Promote standardization and Calls for international Calls for harmonization of The United States should lead Support international
improved oversight of credit information-sharing agreements international standards for a global effort to harmonize cooperation
derivative and other OTC regulation of OTC derivatives derivatives regulation
derivative markets globally
1
An Eligible Contract Participant includes financial institutions, insurance companies, commodity pools and wealthy individuals. These participants are authorized to engage in complex stock or
futures transactions such as block trades, exchanging excluded commodities and transacting on a derivatives transaction execution facility. Becoming an Eligible Contract Participant provides a
person or group with a wider range of investment choices and financial options than would be available to a standard investor. Defined in Sec. 1a (12) of the Commodity Exchange Act.
1
The Financial Accounting Support on-balance sheet

Standards Board (FASB) and reporting of structured
International Accounting investment vehicles
Standards Board (IASB) must
improve accounting for
derivatives.
Timely reporting of trades, Timely publication of trading Timely publication of trading OTC trading in derivatives OTC trading in derivatives
prices and other trade data information information should be strictly limited and should be strictly limited and
Increased recordkeeping and Semiannual reporting of Reporting of aggregate swap data subject to robust federal subject to robust federal
reporting on all OTC derivatives aggregate swap data Increased recordkeeping on OTC regulation including: regulation including
Public disclosure of aggregate Increased recordkeeping on OTC derivatives Dealer registration SEC and CFTC should have
data on open positions and derivatives Confidential reporting of Record keeping and primary regulator
volume Confidential reporting of individual counterparty trade and reporting responsibility for OTC
Data on any individual individual counterparty trade and position data to regulators, Greater transparency derivatives
counterparty’s trades and position data to regulators, systemic risk overseers, Dept. of SEC and CFTC should have Electronic trading for
positions confidentially available systemic risk overseers, Dept. of Justice primary regulator remaining OTC derivatives
to regulators Justice responsibility for OTC would provide sufficient
derivatives transparency
2
Systemic Risk Oversight Board

Federal Reserve authority to Federal Reserve would chair a Creates Financial Services Against having the Federal Against having the Federal
oversee and regulate: Financial Stability Oversight Oversight Council with primary Reserve overseeing and Reserve overseeing and
Any financial firm whose Council (“FSOC”) with functional bank and markets regulators as regulating too-big-to-fail firms regulating too-big-to-fail
size, leverage, and regulators and one independent voting members, and the because of their poor track firms
interconnectedness could representative as members Treasury Secretary as chair record in the past
pose a threat to financial FSOC would also supervise and Would advise on regulation,
stability if it failed, and regulate nonbank financial monitor markets for systemic
Systemically important companies and certain bank threats
payment, clearing and holding companies
settlement systems, and
activities of financial firms.
New Financial Services Creates an Office of Financial Gives FDIC authority to loan or New Systemic Risk Oversight Support independent
Oversight Council (“FSOC”) - 8 Research (“OFR”) to research and guarantee obligations of solvent Board with full-time staff, systemic risk oversight body
financial regulators and officials report on systemic risk issues insured depository institutions to independent of industry and to collect and analyze
to: Would be housed in the Treasury prevent financial instability regulators systemic risk data, and to
Facilitate information Department during times of severe economic Reports on systemic pressures make alerts and
sharing and coordination, Funding for the FSOC would come distress to relevant regulators recommendations to
Identify emerging risks, out of the OFR’s budget Credit cannot include equity Periodically reports to functional regulators about
Advise Fed on identification investments Congress and the public troubling trends and
threats to financial stability Functional regulators comply occurrences.
A forum to discuss issues with proposals or explain to
among regulators Congress why they did not.
3
Resolution Authority
New authority similar to the Creates a $50 billion “Orderly Identifies institutions that need Regulators should be given Support bankruptcy-based
FDIC to address the potential Liquidation Fund” for failing heightened prudential standards resolution authority, structure that forces failing
failure of a bank holding financial companies (an (too big to fail) analogous to the FDIC’s non-banks into bankruptcy
company or nonbank financial amendment discussed below Requires higher risk-based authority for failed banks, to court for resolution.
firm when the stability of the removes this fund) capital, lower leverage, restricts wind down or restructure Against too-big-to-fail
financial system is at risk Risk-based assessments on bank asset/deposit concentrations, troubled systemically Against letting FDIC/Fed
holding companies with $50B or prompt corrective actions, significant non-banks. guarantee assets/liabilities
more in assets, or nonbanks resolution plans, and risk of failing financial firms in
supervised by the Fed management time of market stress
Fed must receive prior written The Treasury, SEC, and/or the Fed May require financial companies Authority should include
approval from the Secretary of may request in writing to appoint to sell or transfer assets to explicit powers to seize, wind
the Treasury before providing the FDIC as receiver for failing unaffiliated firms, to terminate down and restructure
emergency loans under its large institutions (an amendment activities, or impose conditions troubled institutions deemed
“unusual and exigent discussed below put limits on on certain activities “too big to fail”
circumstances” authority these powers)
New authority similar to the FDIC is receiver for failed financial Fed may launch a petition for Consideration should be given Support bankruptcy for
FDIC to address the potential companies and has authority to involuntary bankruptcy for a to expanded use of the failing non-banks
failure of a bank holding make funds available for orderly failing financial firm identified as Bankruptcy Code to achieve Against too-big-to-fail
company or nonbank financial liquidation too big to fail an orderly resolution of failed Against FDIC/Fed guarantee
firm when the stability of the SIPC will have similar role for nonbanks. of assets/liabilities for failing
financial system is at risk failing broker/dealers financial firms
FDIC may merge failing firms with
other financial firms
FDIC may transfer assets and
liabilities without approval of firm
4
FDIC has authority to pay all valid

obligations due and payable at
the time of receivership
FDIC would collect from such
creditors if the net assets were
insufficient to pay senior debts
FDIC, with Treasury approval,
may make additional payments
or credit more to claimants if it
would minimize losses
Shelby/Dodd amendment would: Requires undercapitalized firms
Eliminate $50B bailout fund to provide a capital restoration
Restricts Fed’s ability to provide plan to the Fed
liquidity to the financial system
during severe market distress
Requires Fed to seek Treasury
approval before making
emergency loans
Creates strict solvency and
collateral requirements for
emergency Fed lending
Creates strict accountability for
emergency Fed loans
Debt guarantees by FDIC and
Treasury will require prior
Congressional approval
5
Credit Rating Agencies

Calls for increased regulation of Creates Office of Credit Ratings Requires increased transparency Increase SEC’s oversight of NRSROs need increased
nationally recognized statistical (“OCR”) within the SEC on rating methodologies NRSROs liability for negligence in due
rating organizations (NRSROs) OCR oversees NRSROs to Increases liability for NRSROs diligence or for fraud
Calls for reduced conflicts of promote accuracy in credit for poor due diligence Support eventual removal of
interests ratings, and to limit the effects of Reduce legal and regulatory references to credit ratings
conflicted interests reliance on NRSRO ratings and NRSROs in law and
regulations
NRSROs required to have internal Requires NRSROs to have certain Should have to manage Support internal controls to
controls for their rating governance structures in place to conflicts of interest prevent and manage
procedures and methodologies help manage conflicts of interest Study other business models conflicts of interest
Enables the SEC to fine CRAs Increases liability for NRSROs Support increased liability
SEC can suspend or revoke CRA for poor due diligence for NRSROs for inadequate
ability to rate a particular class of due diligence
securities for a certain period
Imposes increased transparency Support increased
requirements on ratings transparency requirements
performance for methodologies and
Impose increased transparency performance
requirements on rating
methodologies
6
Fiduciary Duty
Bill calls for study of uniform SEC to adopt rules for Investment advisers and All individuals providing
fiduciary duty and the brokers/dealers when providing brokers who provide similar type of specific
effectiveness of current personalized investment advice personalized investment investment advice to
standards of care for brokers, that are similar to those applied advice to customers should customers should have to
dealers, investment advisers to investment advisers under the adhere to fiduciary standard adhere to fiduciary duty
Adviser Act
Specter Amendment would Amends Adviser Act requiring
amend the Exchange Act rather that the standard of conduct for
than the Advisers Act all brokers/dealers and
Would empower the SEC to investment advisers when
define the scope of duty owed by providing personalized
broker/dealers to their clients investment advice is to act in the
with regard to investment advice best interests of the customer
without regard to the interests of
the adviser or the adviser’s firm
Section 404b of Sarbanes-Oxley Act

Exempts companies that are not All companies whose shares
accelerated filers from the are listed on regulated
internal control audit exchanges should have to
requirements of Section 404 of adhere to the same
Sarbanes-Oxley Act of 2002. disclosure requirements,
SEC and Comptroller General to regardless of their size,
jointly study how to reduce the business, location, or
costs of section 404(b) for firms exchange listing
with market capitalizations
between $75M and $250M

Comparison of Regulatory Proposals

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Comparison of Regulatory Proposals

Uploaded by

Copyright:

Available Formats

Side-by-Side Analysis of Financial Regulatory Reform Proposals and CFA Institute Views – 21 May 2010

The Financial Accounting Support on-balance sheet

Systemic Risk Oversight Board

FDIC has authority to pay all valid

Credit Rating Agencies

Section 404b of Sarbanes-Oxley Act

You might also like