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Senate Committee on Banking, Housing, and Urban Affairs, Chairman Chris Dodd (D-CT) Contact: Kirstin ... - page 10 / 11





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Every investor from a hardworking American contributing to a union pension to a day trader to a retiree living off of their 401(k) deserves better protections for their investments. Investors in securities will be better protected by improving the competence of the SEC, creating uniform standards for those providing customers investment advice, and giving investors the right to sue those who commit securities fraud.

Why Change Is Needed: The Madoff scandal demonstrated just how desperately the SEC is in need of reform. The SEC has failed to perform aggressive oversight and is unable to understand the very companies it is supposed to regulate. And investors have been used and abused by the very people who are supposed to be providing them with financial advice.

SEC and Beefed Up Investor Protections

  • SEC Reforms: Mandates an annual assessment of the SEC’s internal supervisory controls and a biannual GAO study of SEC management.

  • Uniform Standards for Advisors: Mandates uniform standards for anyone providing customers investment advice, eliminating different standards for brokerdealers and investment advisers. Small investors should have uniform protections regardless of the title of the financial professional advising them has.

  • Best Interest of the Client: Brokers who give investment advice will be held to the same fiduciary standard as investment advisers they will be required to act in their clients’ best interest.

  • Aiding and Abetting: Investors will be able to sue persons who help commit securities fraud.

  • New Advocates for Investors: Creates the Investment Advisory Committee, a committee of investors to advise the SEC on its regulatory priorities and practices as well as the Office of Investor Advocate in the SEC, to identify areas where investors have significant problems dealing with the SEC and FINRA and provide them assistance.

  • Funding: The self-funded SEC will no longer be subject to the annual appropriations process.


Companies that sell products like mortgage-backed securities are required to retain a portion of the risk to ensure they won’t sell garbage to investors, because they have to keep some of it for themselves.

Why Change Is Needed: Companies made risky investments, such as selling mortgages to people they knew could not afford to pay them, and then packaged those investments together, called asset-backed securities, and sold them to investors who didn’t understand the risk they were taking. For the company that made, packaged and sold the loan, it wasn’t important if the loans were never repaid as long as they were able to sell the loan at a profit before problems started. This led to the subprime mortgage mess that helped to bring down the economy.

Reducing Risks Posed by Securities

  • Skin in the Game: Requires companies that sell products like mortgage-backed securities to retain at least 10% of the credit risk. That way if the investment doesn’t pan out, the company that made, packaged and sold the investment would lose out right along with the people they sold it to.

  • Better Disclosure: Requires issuers disclose more information about the underlying assets and to analyze the quality of the underlying assets.


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