SEC tries to hold on to power amid Geithner’s overhaul
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In the new federal rush to reregulate the financial system, the Securities and Exchange Commission understandably is trying to preserve a role for itself -- in the face of devastating criticism that the agency failed to detect Bernie Madoff’s massive Ponzi scheme over the last decade.
So while Treasury Secretary Timothy F. Geithner was unveiling his six-part reregulation plan before the House Financial Services Committee today, new SEC Chairwoman Mary Schapiro was detailing her own plans to the Senate Banking Committee.
From Bloomberg News:
Schapiro said she will impose new rules on money managers to safeguard client holdings after Bernard Madoff’s $65-billion fraud shattered investor confidence. The SEC will propose that all investment advisers who have custody of customer assets undergo annual audits that are ‘unannounced,’ Schapiro told members of the Senate Banking Committee today. Money managers may also be subject to compliance audits by professional examiners to make sure they are adhering to securities laws, she said. Under current SEC rules, money managers are subject to unannounced audits only if they send account statements directly to investors. Schapiro’s proposal would expand the unannounced audits to money managers who hire brokers to send out statements.
In one intriguing comment, Schapiro told senators that the SEC needs congressional authority to financially reward whistleblowers who provide information about wrongdoing. Currently, the SEC can only reward people who tip off the agency about insider trading, she said. Could a new army of paid citizen informers be on the horizon?
As for the SEC’s role within Geithner’s proposed new regulatory framework, the Treasury secretary would force all hedge funds and private-equity firms above a certain size to register with the SEC. The SEC then would be expected to share information about the firms with a ‘systemic risk regulator,’ which could be the Treasury or the Federal Reserve.
Schapiro made her case against weakening the SEC’s regulatory role. From Bloomberg:
Schapiro defended the SEC since taking the helm in January, arguing that the agency must remain independent of any regulator Congress assigns the role of monitoring risks posed to the economy by large banks, hedge funds and private equity firms. ‘Congress created only one agency with the mandate to be the investors’ advocate,’ Schapiro said. ‘If there were ever a time when investors need and deserve a strong voice and a forceful advocate in the federal government, that time is now.’
Sen. Bob Corker (R-Tenn.) asked Schapiro whether Geithner’s proposal amounted to a ‘power grab’ by the Treasury and the Federal Reserve.
She threw the ball back into Congress’ court: ‘The devil is in the details,’ she said.
-- Tom Petruno