Investor Protection Act Passes House Committee

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Nov. 4, 2009.

Legislation passed Nov. 4, 2009, by the House Financial Services Committee would double the Securities and Exchange Commission (SEC) budget over the next five years, while ramping up the agency’s enforcement powers and regulatory authorities.

H.R. 3817, the Investor Protection Act, introduced by Rep. Paul Kanjorski, D-Pa., passed by a vote of 41-28. “Our financial system has failed far too many investors for far too long and we must change course,” Kanjorski said.

The legislation also includes a provision that would exempt small businesses with a market capitalization of $75 million or less from complying with the audit requirements of the Sarbanes Oxley Act.

Fiduciary Standard

H.R. 3817 would require broker dealers and investment advisors to adopt a fiduciary standard putting their customers’ interests first. It also would establish a whistleblower bounty program, which would offer rewards to individuals whose tips result in successful enforcement actions. In addition, the bill would allow the SEC to bar mandatory arbitration clauses in customer contracts.

Proxy Access Rules

The panel also adopted an amendment from Rep. Maxine Waters, D-Calif., that would allow the SEC to impose proxy access rules so that shareholders could nominate directors to corporate boards. The U.S. Chamber of Commerce strongly opposes the amendment, arguing that it will federalize corporate law with a one-size-fits-all approach on proxy access, and overturn 150 years of state corporate law.

Separately, in a speech the same day, SEC Chairman Mary Schapiro said she is committed to bringing final rules on proxy access to the full Commission for consideration early in 2010. This would mean that any new rules would not be in effect for the 2010 proxy season, she explained, “but we think it’s far more important that we adopt the right rules—rules that make sense and are workable—than it is for us to act rashly.”

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