• Financial Services: Readying For Reform
  • January 16, 2004
  • Law Firm: Foley & Lardner LLP - Washington Office
  • Recent headlines about questionable practices at some of the nation's largest mutual fund complexes, combined with accusations of lax oversight and enforcement by the SEC, have rattled the nerves of investors. To restore confidence and prevent a possible "run on the bank," Congress may be impelled to adopt sweeping regulatory reforms with far-reaching implications for the financial services industry.

    How far Congress will go is unclear. What is clear is that any reforms will likely affect every type of participant in the industry, including banks and broker-dealers that sponsor and sell mutual funds, investment advisers that manage or recommend them, insurance companies that sponsor or partner with them, and hedge funds and pension plans that invest in them. Although incremental regulatory changes are more likely in the short term, it may not be too early for financial services counsel to consider the potential merits and ramifications of reforms, such as:

    1. Creation of a unified government agency to coordinate the regulation of banking, brokerage, securities and insurance, including a separate division for regulating investment companies;

    2. Application of a uniform fiduciary standard to all individuals selling or recommending financial products and services to investors;

    3. Implementation of a single licensing program to ensure uniform qualifications, education and training;

    4. Implementation of a uniform code of ethics to govern and guide marketplace conduct; and

    5. Imposition of greater independence requirements for boards and committees responsible for oversight of management as well as greater use of independent third-party compliance certifications.