House Pushes Ahead on Financial-Rules Overhaul
The House of Representatives will consider sweeping legislation rewriting the financial sector's rule book in November, House Majority Leader Steny Hoyer (D., Md.), said Tuesday, boosting the chances that Congress will complete a regulatory overhaul this year.  Mr. Hoyer said the House Financial Services Committee would complete its work on legislation this month, and a wider debate on the House floor would occur next month. Many observers have increasingly said that it was unlikely the broad rewrite of financial regulations would be completed this year, in part because health-care legislation has taken longer to work through Congress than the Democratic majority had anticipated.

House Pushes Ahead on Financial-Rules Overhaul

By MICHAEL R. CRITTENDEN and COREY BOLES

WASHINGTON – The House of Representatives will consider sweeping legislation rewriting the financial sector's rule book in November, House Majority Leader Steny Hoyer (D., Md.), said Tuesday, boosting the chances that Congress will complete a regulatory overhaul this year.

Mr. Hoyer said the House Financial Services Committee would complete its work on legislation this month, and a wider debate on the House floor would occur next month. Many observers have increasingly said that it was unlikely the broad rewrite of financial regulations would be completed this year, in part because health-care legislation has taken longer to work through Congress than the Democratic majority had anticipated.

The House committee pushed ahead Tuesday with its work on the regulatory overhaul, as industry groups sought to limit and mold proposed changes to the oversight of hedge funds and investment-advisers.

Members of the House Financial Services Committee debated a trio of draft bills that would roll back the ability of financial firms to insist on mandatory arbitration clauses in contracts, and would for the first time involve the federal government in sharing some oversight role over the insurance industry.

Democrats on the panel said the measures, which would also apply a fidicuiary standard to both investment advisers and broker-dealers, were integral parts of the broader regulatory revamp.

"Billionaires on Wall Street have had their day, egged on by a culture of greed, deregulation, and a survival-of-the-fittest attitude that ignored the harsh effects those things inflict upon larger society," said Rep. Paul Kanjorski (D., Penn.)

Republicans on the committee continued to warn about Congress moving too quickly or going too far in eliminating regulatory shortcomings exposed in the recent credit crisis. Rep. Scott Garrett (R., N.J.), accused Democrats of rushing the legislative process, while the panel's top GOP member said he was concerned about new oversight of generally unregulated private investment funds.

"We must ensure that any new regulatory powers ... are appropriate and do not interfere with the comprehensive due diligence that investors already perform," said Rep. Spencer Bachus (R., Ala.).

Representatives from the securities industry appearing before the panel went head to head on other issues. John Taft, testifying for the Securities Industry and Financial Markets Association, said a proposed limit on arbitration agreements was unnecessary.

"The basis for this policy has been that arbitration simultaneously promotes fairness and efficiency," Mr. Taft said.

That position didn't sit well with Denise Crawford, president of the North American Securities Administrators Association Inc., who warned that a system in which investors' only recourse is through an industry-controlled arbitration process doesn't protect individuals.

"If arbitration really is fair, inexpensive, and quick, as its adherents claim, then these benefits will prompt investors to choose arbitration," she said.

Ms. Crawford, who is also the Texas Securities Commissioner, said a system in which investors have a legitimate choice between arbitration or other methods of recourse would be more appropriate.

There was more agreement on balancing regulation of investment advisers and broker-dealers offering essentially the same services to retail investors. Richard Ketchum, chairman of the Financial Industry Regulatory Authority, said the current system allows firms "to arbitrage oversight by choosing a form of registration that offers the least regulatory burden."

Ms. Crawford said broker-dealers, who are currently subject to a "suitability standard," should be subject to the fiduciary standard that is applied to investment advisers. She also warned lawmakers to be wary of industry efforts to water down or alter what is meant by "fiduciary duty."

"Upon close examination, their 'new federal fidicuiary standard' is hardly the pro-investor fiduciary duty that has permeated investment adviser regulation for over four decades," she said.

Mr. Kanjorski too said he was wary of the influence of lobbyists. "We must ensure that special interests do not weaken particular solutions to the point of becoming toothless," he said.

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