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CFA Institute today offered strong support for many of the items contained in the Senate Banking Committee bill on regulatory reform.

New York, March 16, 2010 – CFA Institute today offered strong support for many of the items contained in the Senate Banking Committee bill on regulatory reform. (CFA Institute spokespeople are available to comment on the Senate legislation, contact Kathy Valentine to request an interview.)

“At first glance, three areas we felt most critical to avoiding a repeat of the recent systemic meltdown are addressed in the new draft,” said Kurt Schacht, CFA, managing director at CFA Institute. “First, having a properly structured oversight body for systemic risk is critical. In our view, confidence in the U.S. markets can be greatly improved by having the right combination of expertise and authority for effective detection, mitigation, and resolution of systemic risk problems. We were pleased to see that the Senate bill includes an independent research office that will collect and analyze data to inform the Financial Stability Oversight Council‘s actions on overseeing systemic risk.”

“Second, we are delighted to see proposals that clarify bank regulatory responsibilities, limit proprietary trading risks, and implement more dynamic and preventative margin and capital requirements during changing market conditions,” said Schacht. “This coupled with legislation that closes the gaps in OTC derivatives regulation and the introduction of a process to reduce the complexity and potential impact of too-big-to-fail institutions shows that the investor perspective has been given strong consideration for the first time in many years.”

Schacht added, “The proposed legislation on say-on-pay and proxy access will go far in ensuring that public companies are truly accountable to their shareowners. CFA Institute and others have been calling for these reforms for many years to assure that shareowners can effectively exert their ownership rights.”

“The important test for lawmakers will be whether they can ‘hold the line’ for these important investor protections,” said Schacht. “We expect that banking and other special interests will do their level best to strip many of these important protections from the final bill. For example, we are troubled to see the Senate legislation propose only a study on the need for a single fiduciary duty standard. We encourage senators to keep investors’ interests in mind at all times and resolve this issue by adopting a single standard for providers of investment advice. CFA Institute will continue to press for appropriate consideration of investor priorities as the Dodd bill moves through the Senate. Congress has a once-in-a-lifetime opportunity to make a positive impact on market fairness and integrity.”

In May 2009, the Investors’ Working Group, co-sponsored by CFA Institute and the Council of Institutional Investors, made several investor-friendly recommendations on U.S. market regulation reform, including:

* Strengthening and reinvigorating existing federal agencies responsible for policing financial institutions and markets and protecting investors and consumers. Regulatory will must be restored.

* Filling in the gaps in the regulatory architecture and in authority over certain financial institutions, investment firms, and products. For example, all standardized (and standardizable) OTC derivative contracts should move to regulated exchanges and central clearinghouses.

* Investors need better governance tools to hold directors accountable so they will be motivated to challenge executives who pursue risky strategies.

* Creating an independent systemic risk oversight board unaffiliated with existing regulators to gather information and make recommendations to functional regulators.

* Implementing a uniform proxy access rule to improve shareowners’ fundamental rights to place their director nominees on companies’ proxy cards. Directors must be elected by a majority of shareowner votes to eliminate “rubber stamp” elections that effectively prevent removal of those directors that fail to fulfill their oversight responsibilities.

* Empower the SEC to subject all who provide personalized investment advice, including broker-dealers, to a fiduciary duty so that the quality of advice given to retail investors is in their best interests.

Read more:

* "Tackling systemic risk is no job for the status quo," Financial Times

* Investment Professionals Support Systemic Risk Oversight Board Proposal

* Financial Reform Legislation Improvements Still Needed

* Letter to the U.S. Senate on Corporate Governance and Strengthening Regulators (PDF)

* Investors’ Working Group

* CFA Institute corporate governance and executive compensation positions.

About CFA Institute

CFA Institute is the global association for the investment profession. It administers the CFA and CIPM curriculum and exam programs worldwide; publishes research; conducts professional development programs; and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has nearly 100,000 members, who include the world’s more than 87,000 CFA charterholders, in 134 countries and territories, as well as 137 affiliated professional societies in 58 countries and territories. More information may be found at www.cfainstitute.org.

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