Carol Perry column: Questions about the financial reform bill
For the Nevada Appeal
With a pen stroke from President Obama, a new era of financial and regulatory reform is upon us. But will this reform bill bring closure for Wall Street and it’s investors? That is truly the $64,000 question.
Most likely, passage of this bill will usher in a long period of uncertainty, which many industry pros will monitor and attempt to influence. All of us who have worked in financial services are wondering how federal agencies can and will conduct the hundreds of studies and rules mandated by the 2300 pages of legislation.
There is little question that things are going to change, the question is how much is going to change and how soon.
The proverbial dung is definitely going to roll downhill starting with the Securities and Exchange Commission (SEC) that must complete a study within six months that assesses gaps in the oversight of investment advisors, who must then act in the best interest of clients and disclose material conflicts of interest. Then broker dealers and their reps must ensure that an investment is suitable to the needs of said client. The idea is that imposing a fiduciary duty on all investment advice will better protect the consumer. Broker dealers are currently not opposed to a universal standard but are concerned that if not written carefully, such a standard may impinge on practices at the heart of their business.
Regulators are now in the spotlight with such a massive overhaul of the entire financial services industry. We will see new curbs on systemic risk, stronger capital requirements, strengthening regulation of derivatives and establishing a consumer protection agency. There are scores of other provisions, but my article cannot take up most of the Sunday edition.
Now Mr. Obama says that the legislation will protect the consumer and lay the foundation for a stronger and safer financial system while not stifling innovation, creativity and competition. Most of the members of the GOP who strongly opposed the bill say all it will do is create massive new bureaucracies, raise costs and crimp credit while failing to reform mortgage lending, a primary cause of the financial meltdown. Any mention of reform within massive Fannie Mae and Freddie Mac are notably absent in the bill.
What is not up for debate is that the bill gives the SEC an overflowing agenda to deal with. The measure requires the agency take 124 actions to implement portions of the bill. Remember, this is the same agency that could not catch up with Bernie Madoff for about 30 years. This causes me great concern as I see the SEC as already overburdened and understaffed to deal with current regulatory issues.
And don’t even get me started on FINRA. This regulatory agency has a staff of around 3,000 to regulate more than 4,900 brokerage firms with 174,000 branch offices and more than 650,000 reps. The Financial Industry Regulatory Authority (FINRA) is the primary examiner for all these firms and employees under the oversight of the SEC. This ratio of regulators to regulated is not much more than the self regulation we have experienced in the past. We are all still feeling the disastrous result of self regulation within the investment banking system.
Luckily, or perhaps because there are so few regulators, I have had very little exposure to either FINRA or the SEC other than keeping up with continuing education requirements. I am proud to say I ran a clean business, but there are many who do not. Will more regulations actually protect the consumer? It will be interesting to see how this all works out, but with my limited exposure to the SEC and FINRA, I fear, like other government operations that these agencies will become bogged down by this massive overhaul and not only will the consumer be the loser, everyone involved will be too.
• Carol Perry has been a Northern Nevada resident since 1983. You can reach her at email@example.com.