Investment Management and Financial Markets Group
April 9, 2008
Department of Treasury Proposes
Financial Regulation Reform
Background
The U.S. Department of Treasury (Treasury) has released the Blueprint for a Modernized Financial
Regulatory Structure (Blueprint). Recognizing that the financial services markets have changed
significantly in the last decade due to technological advances, financial innovation, continued
globalization, and a trend toward further institutional use of the markets, the Treasury intended the
Blueprint as a way to improve the scope of U.S. regulation, while maintaining U.S. competitiveness in
global markets. The Blueprint was published on March 31, 2008.
The Blueprint makes three sets of suggestions: (1) short-term suggestions, designed to be
implemented immediately to address the current events caused by the credit markets; (2) intermediateterm suggestions, designed to increase the efficiency of financial regulation; and (3) long-term
suggestions, in the form of a conceptual model that is intended “to begin a discussion about rethinking
the current regulatory structure and its goals.”
A number of the intermediate and long-term suggestions, if implemented, would change the regulatory
framework under which investment-advisers, broker-dealers, investment companies, futures
commission merchants and commodity pool operators would be regulated in the future.
Discussion
The Blueprint makes the following main recommendations:
Short-Term Suggestions:
•
Expand the power and membership of the President’s Working Group on Financial
Markets to better coordinate oversight of the financial markets;
•
Adopt a federal regulatory structure that will oversee mortgage brokers and other
mortgage originators, including the creation of the Mortgage Origination Commission;
and
•
Expand and formalize the role of the Federal Reserve in lending to non-depository
institutions.
CHICAGO ● SAN DIEGO● WASHINGTON
Intermediate-Term Suggestions:
•
Merge the Commodity Futures Trading Commission (CFTC) and the Securities and
Exchange Commission (SEC). Such a merger would be prefaced by the SEC moving
toward a principles-based form of regulation similar to that used by the CFTC.
•
Of particular note, the Blueprint recommends that:
-
the SEC undertake exemptive rule-makings that would allow non-U.S.
investment companies access to the U.S. markets;
-
the SEC propose to Congress legislation that would allow registration of a new
“global” investment company that could be marketed worldwide, and which would
have regulatory protections similar to those presently in place for U.S. investment
companies;
-
broker-dealer and investment adviser regulations should be harmonized; and
-
a self-regulatory organization should be created for investment advisers.
•
Phase out thrift charters, and convert existing thrifts into national banks;
•
Appoint a single federal agency to regulate state banks (currently those obligations are
split between the Federal Reserve and the Federal Deposit Insurance Corporation
(FDIC));
•
Require federal charters for all significant payment and settlement facilities, including
securities payment and settlement systems, and provide the Federal Reserve with
oversight authority over those entities; and
•
Create an optional Federal charter for insurance companies, and permit insurance
companies to choose whether to be federally regulated or state regulated. Federally
chartered insurance companies would be overseen by the new Office of National
Insurance.
Long-Term Suggestions:
The Blueprint suggests that the U.S. consider moving to an objectives-based approach of financial
regulation. Under such an approach, financial institutions would be divided into three groups: (1)
Federally Insured Depository Institutions; (2) Federal Insurance Institutions; and (3) Federal Financial
Service Providers. Regulation over these groups of institutions, and over corporate issuance of
securities, would be provided by five agencies:
1.
A Corporate Finance Regulator would encompass the SEC’s present authority over
corporate disclosures, corporate governance, accounting oversight, and other similar
issues;
2.
The Federal Reserve would be responsible for market stability issues;
3.
A Prudential Financial Regulatory Authority would be responsible for regulation of
Federally Insured Depository Institutions and Federal Insurance Institutions to ensure
financial soundness;
2
4.
A Conduct of Business Regulatory Agency would be responsible for business conduct
regulation, including advertising, across all three types of federally chartered entities;
and
5.
A Federal Insurance Guarantee Corporation, which would essentially be the successor
to the FDIC, and which would provide federal deposit insurance.
Outlook
It is too early to determine whether or when the Blueprint’s recommendations will be put into effect. The
Blueprint has, however, begun a debate on the current efficacy and future direction of financial
regulation in the U.S. We are happy to discuss the implications of the Blueprint with you. The full text of
the Blueprint is online at: http://www.treas.gov/offices/domestic-finance/regulatory-blueprint/.
For further information, please contact Cameron Avery 312-807-4302, Kevin Bettsteller 312-807-4442,
Paul Dykstra 312-781-6029, Jennifer Esquibel 312-807-4262, David Glatz 312-807-4295, Alan Goldberg 312-807-4227,
Elizabeth Hudson 312-807-4376, Anna Paglia 312-781-7163, Andrew Pfau 312-807-4386, Paulita Pike 312-781-6027, Eric
Purple 202-955-7081, Bruce Rosenblum 202-955-7087, Donald Weiss 312-807-4303, Gwendolyn Williamson 202-955-7059,
or Stacy Winick 202-955-7040 of Bell, Boyd & Lloyd’s Investment Management and Financial Markets Group or visit our Web
site at www.bellboyd.com.
This publication has been prepared by the Investment Management and Financial Markets Group of Bell, Boyd & Lloyd LLP
for clients and friends of the firm and is for information only. It is not a substitute for legal advice or individual analysis of a
particular legal matter. Readers should not act without seeking professional legal counsel. Transmission and receipt of this
publication does not create an attorney-client relationship.
© 2008 Bell, Boyd & Lloyd LLP All Rights Reserved
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