Thursday, March 26, 2009

Treasury Secretary Geithner Introduces Overhaul of Financial Regulatory System

Appearing before the House Financial Services Committee today, Treasury Secretary Timothy Geithner outlined the Obama Administration's plan to overhaul the U.S. financial regulatory system. Although further details of the plan remain to be disclosed, Secretary Geithner noted that the forthcoming regulatory framework will cover four broad areas: systemic risk, consumer and investor protection, eliminating gaps in the regulatory structure, and international coordination. Among the most significant details released are the proposals to create a single entity with responsibility for systemic stability over the major institutions and critical payment and settlement systems and activities; a new requirement for leveraged private investment funds with assets under management over a certain threshold to register with the SEC; and the establishment of a stronger resolution mechanism that will give the government tools to protect the financial system and the broader economy from the potential failure of large complex financial institutions.

The plan includes the requirement for all advisers to hedge funds (and other private pools of capital, including private equity funds and venture capital funds) with assets under management over a certain threshold to register with the SEC. This reflects the Administration's belief that all such funds advised by an SEC-registered investment adviser should be subject to investor and counterparty disclosure requirements and regulatory reporting requirements. The proposal is expected to include regulatory reporting requirements for such funds that would require reporting, on a confidential basis, information necessary for the newly created regulatory entity to assess whether the fund or fund family is so large or highly leveraged that it may pose a threat to financial stability.