House Makes Progress on Financial Industry Regulatory Overhaul

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Democrats in the U.S. House of Representatives are poised to pass legislation that is part of the biggest overhaul of financial regulations since the New Deal, according to NPR. But it won't be as strict on derivatives trading as its sponsors originally planned, and the final version probably won't provide for the creation of a Consumer Financial Protection Agency, which would "consolidate consumer lending regulations and enforcement."


Consumer protection regulations are currently enforced by several different banking regulators, and the U.S. Chamber of Commerce is lobbying to keep it that way. The problem, according to the Chamber, is that the Consumer Financial Protection Agency, as proposed in the legislation, would have "broad and sweeping powers" Here's an excerpt:

The CFPA would have sweeping and broad authority to regulate businesses across the spectrum of industry, even if they are not in the business of consumer finance. Broad definitions and vague regulatory standards would give the CFPA unending jurisdiction and unchecked power, exposing businesses both to its regulatory authority and the litigation exposure that comes with it.

Instead, the Chamber recommends improving existing regulation so that it provides the tools lenders need to simplify disclosures and to "weed out the bad actors."


As for the controls on derivatives trading, NPR reports, "The legislation still imposes restrictions on derivatives, aiming to prevent manipulation in and bring transparency to a $600 trillion global market." But there's an exemption for businesses that trade in derivatives "to hedge against market fluctuations," as in gas prices, for instance.


In other financial regulatory action, on Friday the House rejected legislation that would have given the Financial Industry Regulatory Authority control over investment advisers at broker-dealers. InvestmentNews reports:

Rep. Spencer Baucus, R-Ala., agreed to strike the FINRA provision and indicated he would explore other options to regulating advisers.