US - The US Senate has approved the largest overhaul of financial regulation since the Great Depression, aimed at averting a repeat of the recent credit crisis.
After being passed by the US House of Representatives earlier this month, Senators yesterday approved the bill by 60 votes to 39.
In a major victory for President Barack Obama, the reforms will bring added regulation to Wall Street and aims to improve mortgage lending and eliminate the easy access to credit. It also impacts the investment activity of defined benefit and defined contribution plans, placing restrictions on their use of swaps.
Speaking after the vote, Obama said the US public would never again be "on the hook for Wall Street's mistakes".
"The kind of reform that will protect consumers when they take out a mortgage or sign up for a credit card, reform that will prevent the kind of shadowy deals that led to this crisis, reform that would never again put taxpayers on the hook for Wall Street's mistakes."
The bill includes the controversial Volcker rule, which will curb proprietary trading by the largest financial firms. Banks will still be allowed to make small investments in hedge and private equity funds.
Institutions will also need to increase the amount of capital held to protect against bad loans.
Under the new rules, pension plans face some restrictions on their use of swaps, though the restrictions have been lightened from an earlier version of the bill. The bill now allows pension funds to use swaps without having to adhere to capital and margin requirements as long as they are used "for the primary purpose of hedging or mitigating any risk directly associated with the operation of the plan".
The use of swaps had been one of the biggest concerns among pension professionals. There were worries the bill "would have come with a series of strings that a corporate and public fund wouldn't have been equipped to deal with," said Mercer senior partner Christine Mahoney.
The Profit Sharing/401(k) Council of America said the wording is less-than-perfect for a defined contribution plan, as it mainly addresses defined benefit plans. Larger DC plans could include swaps in their separately managed accounts, the organisation said in an analysis of the bill.
The bill also calls for a review of the use of stable value funds in DC plans, and whether or not a stable value wrapper could qualify as a swap. The bill ordered the SEC and the Commodity Futures Trading Commission to conduct a study over the next 15 months.
A new federal agency will be designed to oversee consumer lending and outline new regulations for complex financial instruments.
Federal Reserve chairman Ben Bernanke said the legislation represented "a welcome and far-reaching" step toward preventing a replay of the recent financial crisis.
"It strengthens the consolidated supervision of systemically important financial institutions, gives the government an important additional tool to safely wind down failing financial firms, creates an interagency council to detect and deter emerging threats to the financial system, and enhances the transparency of the Federal Reserve while preserving the political independence that is crucial to monetary policymaking," he said.
"Even before passage of reform legislation, the Federal Reserve has been overhauling its supervision and regulation of banking organisations and working to strengthen financial market infrastructures and practices.
"We will be focused and diligent in carrying out our responsibilities under the new law."
But Harvey Pitt, chairman of the Securities & Exchange Commission from 2001 to 2003, said the regulator would struggle to cope with the 2300 pages of legislation.
He questioned whether the limited number of staff would be able to produce and administer exams for thousands more broker dealers, registered investment advisers and hedge funds. (Global Pensions; June 15, 2010)
In other US regulatory news, the Department of Labor (DOL) has issued an interim final rule on fee disclosure and conflicts of interest relating to 401(k) and other retirement plans.
The rule requires plan fiduciaries to disclose the direct and indirect compensation service providers receive. The rule applies to providers that expect to "receive US$1,000 or more in compensation and that provide certain fiduciary or registered investment advisory services; make available plan investment options in connection with brokerage or recordkeeping services; or otherwise receive indirect compensation for providing certain services to the plan," the DOL said in a release.
"Improving disclosure will mean that plan fiduciaries can make more informed decisions about important plan services, the cost of the services and the potential conflicts of interests that their service providers may have," said assistant secretary for the Labor Department's Employee Benefits Security Administration Phyllis Borzi.
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