Press Releases

Frank Announces House Offer to Base Text on Private Funds, Credit Rating Agencies, Thrifts and Insurance

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Washington, DC, June 14, 2010 | comments

Chairman Frank, on behalf of the House conferees, released the House offer on the titles listed below.  The issues will be subject to debate when the House-Senate Conference Committee convenes tomorrow.

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Chairman Frank, on behalf of the House conferees, released the House offer on the titles listed below.  The issues will be subject to debate when the House-Senate Conference Committee convenes tomorrow.
            The issues for tomorrow’s offer:
Title IV – Regulation of Advisers to Private Funds and Others
The House proposes the following amendments to the base text:  
  • Add House provision that requires registration with the SEC of Commodity Trading Advisers (CTAs) who advise private funds (House Bill § 5003, page 1204, lines 1-7) 
  • Add House provision which requires disclosure of certain private fund information to investors, prospective investors, counterparties and creditors. (House bill § 5004, page 1209, lines 1-10)
  • Add new provision which provides a savings clause to ensure that the new registration requirements for advisers to private funds under the Act does not absolve these advisers of their existing registration requirements, as applicable, under the Commodity Exchange Act. (Add new language to Senate bill § 406, page 463)
  • Strike Senate exemption of investment advisers to private equity firms from registration with the SEC (Senate bill § 408, page 464) 
  • Add House provision to exempt investment advisers of private funds with less than $150mm in assets under management (House bill § 5007, page 1212)
  • Amend Senate exemption for the investment advisers of venture capital firms.  Though exempt from registration with the SEC, require the advisers of venture capital firms to keep records and provide reports to the SEC (House bill § 5006, page 1212, lines 3-8)
  • Strike and replace Senate provision defining state and federal responsibilities for investment advisers.  Replace with House provision that requires investment advisers who qualify to register with their home state (i.e. less than $100 million in assets under management) to register with the SEC should their home state not perform examinations. (Strike Senate bill § 410 page 466 and replace with House bill § 7418, page 1377)
  • Strike and replace Senate provision for custodial assets. Replace with House provision that prohibits an investment adviser from providing custodial services for customer accounts that are $10 million or greater in assets.  The SEC may provide an exception from this prohibition if the customer assets are verified by an entity that has a fiduciary duty to the client. (Strike Senate bill § 411, page 466 and replace with House bill § 7419, page 1378)
  • Add House provision which requires the SEC to index for inflation the dollar amount measures to determine who is a qualified client for purposing of paying a performance fee to a registered investment adviser. It also calls for a rounding to the nearest $100,000 when making the determination. (House bill § 5011, page 1216 )
The House proposes the following amendments to the Base text:  
  • Add House provision to strike references to ‘furnish’ and replace with ‘file’ (and their derivations) in existing statute.  Information that is “furnished” to the SEC is subject to a lower standard of accuracy and liability than information that is “filed” with the SEC (e.g. liability for misleading statements only attaches to those who ‘file’ documents with the SEC.  (House bill § 6002, page 1219, lines 3-10, etc.)
  • Add House provisions concerning conflicts of interest.  Provisions include an explicit prohibition of an NRSRO advising the issuer and rating that issuer’s securities, a look-back requirement at the ratings of an analyst that switches jobs, and public notification of a job change by an analyst. (House bill pages 1231-1234 and page 1251)
  • Strike and replace Senate provision for state of mind in private actions of ‘knowing and reckless’.  Replace with House provision that states a gross negligence requirement for cases brought against NRSROs in violating the anti-fraud provisions of the securities laws and that standard is to be applied to NRSROs in the same manner as it is applied to other defendants in the same lawsuits under the securities laws.  Statements made by NRSROs shall not be deemed forward-looking statements. An investor in a rated security can recover damages if the process of determining ratings is deemed grossly negligent and a substantial factor in the economic loss of the investor. (Strike Senate bill § 933, page 1171 and replace with House bill § 6003, page 1252).
  • Strike and replace Senate provision that creates an SRO under the SEC that would assign responsibility for initial ratings of structured securities to a “qualified” NRSRO.  Replace with House provision that commissions an SEC study to evaluate conflicts of interest, the metrics applied to determine the ‘accuracy’ of ratings, the use of an independent utility that assigns ratings for structured finance, and ability of an SRO-type entity to set appropriate fees to compensate and provide incentives for accurate ratings. The SEC will have 1 year to conduct the study. The SEC will present to Congress recommendations for either regulatory or statutory changes that the SEC believes should be made to implement the findings. (Senate bill § 939D, page 1184 and replace with House bill § 6003, page 1252) 
  • Add House provision that eliminates the credit rating agency exemption from the Fair Disclosure rule when working with issuers. Reg FD mandates the full disclosure of material non-public information.  (House bill § 6007, page 1254)
  • Add House provision that provides for a review of the reliance on ratings in the rules and regulations of the covered agencies and mandates a modification of their rules and regulations within one year.  The provision also includes a GAO study of other Federal agencies’ reliance on ratings and recommendations to reduce the use of ratings in rule and regulation. (House bill § 6010, page 1260)
  • Add House provision that eliminates the NRSRO exemption from expert liability under Section 11 of the securities laws (Rule 436(g)).  (House bill § 6012, page 1264)
The House proposes the following amendments to the Base Text:  
  • Strike Senate provision exempting the Office of the Comptroller of the Currency from the Federal Property and Administrative Services Act (Senate bill §319, Page 357, lines 10-23).
  • Amend Senate provision protecting employees from involuntary separation by increasing the protection period from 2 years to 3 years, extending the protection to OCC employees and clarifying pay-protection provisions (House bill § 1212, Page 163 line 17 – Page 164, line 20).
  • Add House provision requiring adoption of procedures and standards to ensure employee transfer requirements are met and to study implementation of such transfer requirements (House bill § 1212, Page191, line 11 – Page 193, line 9).
  • Add House provision requiring an implementation plan and reporting requirements to ensure an orderly transfer of personnel and property from OTS (House bill §1220, Page 191-193);
  • Add House provisions enhancing Federal Deposit Insurance:  elimination of pro-cyclical assessments; enhanced access to information for deposit insurance purposes; and transition reserve ratio requirement to reflect new assessment base (House bill §§ 1403-1405, Pages 308-310);
  • Add provision to insure noninterest bearing transaction accounts above standard FDIC limit, similar to current FDIC Transaction Account Guarantee Program (effectively makes permanent the TAG program).
  • Add provision to increase permanently FDIC and NCUSIF standard maximum deposit insurance amount to $250,000 and make the increase retroactive to January 1, 2008.
  • Add House provision providing for Mutual National Bank and Federal Mutual Bank Holding Company Charters (House bill §1316, Pages 283-302).
  • Amend base text provision establishing the Office of Women and Minority Inclusion to: require the Director of the Office be a Senior Executive Service position; require the Director to coordinate technical assistance to minority-owned and women-owned businesses; require the assessment of the impact of the policies and regulations of each agency on minority-owned and women-owned businesses; and establish an Office of Women and Minority Inclusion in the Office of National Insurance (Senate bill § Page 384, line 20 – Page 390, line 16).
The House proposes the following amendments to the Base text:
  • Change the office name from "National Insurance Office" to "Federal Insurance Office".
  • Add House requirement that Treasury coordinate with the Secretary of Health & Human Services in determining which lines of insurance are health insurance & therefore excluded from FIO authority.
  • Add House provisions to include United States Trade Representative and the relevant congressional committees (FSC, W&M, SBC, SFC) in process by which Treasury negotiates, finalizes and enforces international insurance agreements.  This package of related changes includes:
    • Requirement that Treasury coordinate international insurance agreement negotiations with USTR;
    • Requirement for Congressional "consultation and lay over" before international insurance agreements can be used to preempt inconsistent state insurance provisions;
    • Requirement for de novo judicial review of FIO administrative finding that State insurance measure is inconsistent with international insurance agreement;
    • Replacement of Senate definition of “International Insurance Agreement on Prudential Measures” with House “covered agreement” definition that requires international agreements provide for regulatory protection "substantially equivalent" to regulatory protection as currently provided by State insurance measures.
  • Add House provision requiring FIO to make Paperwork Reduction Act showing before requiring insurers to produce information.  Senate base text requires FIO to "coordinate" with State & Federal agencies/regulators to determine if desired information is available through sources other than directly from insurers, but Senate version does not require FIO to get information from alternate source if available.
  •  Add House study on U.S. and Global Reinsurance Markets.

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