Monday, June 28, 2010

Update: U.S. Financial Reform Progresses

On Friday, June 25, 2010, a conference of the Senate and House of Representatives reached an agreement on the Financial Reform legislation (the "Bill") previously endorsed by the House and Senate in December 2009 and March 2010, respectively.

As previously reported, the Bill eliminates the "private adviser" exemption from registration with the SEC currently available under the Investment Advisers Act of 1940. The version of the Bill agreed upon at the conference maintains an exemption from registration as an investment adviser for venture capital advisers and small advisers (an adviser to private funds with assets under management in the United States of less than $150,000,000), but the exemption for private equity fund advisers, included in the Senate version of the Bill, has been omitted.

The Bill also maintains a milder version of the so-called Volcker Rule, under which banks and their subsidiaries will only be allowed to invest in or sponsor a hedge fund or private equity fund if their investment in such fund (i) amounts to no more than 3 percent of the total ownership interests of the fund not later than 1 year after the date of establishment of the fund; and (ii) is immaterial (as defined in the Bill) to the banking entity, but in no case may the aggregate of all of the interests of the banking entity in all such funds exceed 3 percent of the Tier 1 capital (core capital) of the banking entity.

One of the co-sponsors of the bill, Senator C. Dodd (D-CT) welcomed the conference as having "produced a strong Wall Street reform bill that will fundamentally change the way our financial services sector is regulated." The version of the Bill agreed upon at the conference must now be approved by both the Senate and the House before it can be signed into law by President Obama.