The Dodd plan - Westfair Communications

Sen. Chris Dodd outlined a sweeping plan to overhaul the nation”™s financial services industry, with a significant impact on companies based in his home state of Connecticut.

Among the initiatives, the co-chairman of the Senate Banking Committee proposed allowing the U.S. government to force financial companies to divest assets if their size or status threatens the stability of the financial system; and to create a U.S. Treasury office to oversee insurance companies, a function until now that has remained at the state level.

Other key components of the bill include:

a new independent consumer “watchdog” housed at the Federal Reserve, to ensure Americans get clear, accurate information when shopping for mortgages, credit cards, and other financial products; and protect them from hidden fees, abusive terms, and deceptive practices;
tougher capital and leverage requirements that make it undesirable for financial companies to get “too big too fail,” while updating the Fed”™s authority to allow system-wide support but no longer propping up individual firms;
a new council that would act as an “advanced warning system” to identify and address systemic risks posed by large, complex companies, products, and activities before they threaten the stability of the economy;
eliminating loopholes that allow risky or abusive practices to go on unnoticed and unregulated ”“ including those for hedge funds, a key industry in Fairfield County;
streamlining bank supervision in part by centering regulation in the Fed, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency while continuing state banking departments that largely oversee community banks;
giving shareholders a say on pay and corporate affairs with a non-binding vote on executive compensation;
improving transparency and accountability in credit rating agencies; and
empowering regulators to aggressively pursue financial fraud, conflicts of interest and manipulation of the system.

In describing the bill on the Senate floor, Dodd said he hoped to create “a structure that not only can grapple with crisis, but also can be a source of innovation ”“ of creativity ”“ for wealth creation, job creation, that our financial services sector had a reputation for accomplishing.”

On the hedge fund front, Dodd would require hedge funds to register with the U.S. Securities and Exchange Commission and provide information about their trades and portfolios, which many hedge funds already do.

Dodd would also raise the assets threshold for federal regulation of investment advisers from $25 million to $100 million, a move expected to increase the number of advisers under state supervision by 28 percent. Dodd said states have proven to be strong regulators in this area and subjecting more entities to state supervision will allow the SEC to focus its resources on newly registered hedge funds.

Dodd”™s effort comes as the Connecticut General Assembly is considering a bill that would require hedge fund investment advisers to disclose any potential conflicts of interest or interests that are likely to impair their duties to the fund or its investors.

The bill was referred to the legislative joint commission on banks.

Susan Winkler, executive director of the Connecticut Insurance & Financial Services Cluster, said her organization supports transparency, disclosure and prudent controls, but said the state should await what emerges from the federal debate before attempting to apply its own set of regulatory rules.

“Hedge funds inhabit a regulatory black hole, but their integrity is critically important to our country”™s economy,” said Richard Blumenthal, attorney general of Connecticut, in testimony to the Connecticut General Assembly. “Increasingly, ”˜retailization”™ of hedge funds means that ordinary investors ”“ no longer only wealthy, sophisticated ones ”“ have a material stake in them.”

The SEC reportedly is hiring enforcement staff and examiners in a bid to keep better tabs on the hedge fund industry.

George Canellos, who heads the SEC”™s New York office, disclosed plans to hire more than 30 additional staff, while speaking at the Reuters Private Equity and Hedge Funds Summit. The SEC currently has more than 350 people working on enforcement and examinations in New York.