<nobr>Dec 14, 2009</nobr>

House Passes Financial Regulatory Reform Legislation

Pension Plans Carved Out from CFPA

The full House on December 11 passed by a vote of 223-202, H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, legislation championed by House Financial Services Chairman Barney Frank (D-MA) that would significantly overhaul the financial regulatory system.

H.R. 4173 includes a comprehensive set of financial regulatory reforms that would, among other things, require advisers to private pools of capital to register with the Securities Exchange Commission and be subject to systemic risk regulation, provide shareholders a "say on pay" for executive compensation, increase enforcement powers at the SEC, and regulate the derivatives marketplace.

The bill would also create a new regulatory agency -- the Consumer Financial Protection Agency (CFPA) -- with oversight authority over consumer financial products, including mortgages and credit cards. ERIC had been concerned that, as originally drafted, the CFPA would have authority over retirement plans, but a self-executing amendment with a carve out for pension plan activities (such that pension plans and sponsors will not be subject to the CFPA) was included in the legislation prior to approval. ERIC wrote to Chairman Frank and met with Hill staff to ensure that pension plans and their sponsors would be carved out from the CFPA.

ERIC has also been concerned over a provision in the legislation that would regulate the derivatives marketplace, whereby all standardized swap transactions between dealers and "Major Swap Participants" would have to be cleared and traded on an exchange or electronic platform. The bill as originally drafted defined a major swap participant as anyone that maintains a substantial net position in swaps, exclusive of hedging for commercial risk, or whose positions create such significant exposure to others that it requires monitoring. ERIC sent a letter and met with Hill staff on this issue as well.

The bill approved by the House contains a new definition of swap participant, which, as we read it, would exempt large plan sponsors that utilize derivative investment as hedges against risk, out of the new regulatory format for derivatives. The new definition was added by an amendment offered by Representative Scott Murphy (D-NY).

Questions or comments on the legislation should be addressed to Kathryn Ricard (kricard@eric.org).

Websites:

Self-Executing Amendment (see page 25 of 248)

Murphy Amendment

The Wall Street Reform and Consumer Protection Act

Summary Information on H.R. 4173

Letter to House Committees on Derivatives

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