House Subcommittee Considers Bill to Shred the SEC’s Tires

The many problems with the Investment Advisers Modernization Act

Image credit: Chad K (CC BY 2.0)

While Americans for Financial Reform and our allies are busy campaigning for closing loopholes that are special privileges for private funds, the Majority on the Hill is proposing to do away with even the limited existing reporting requirements to protect investors and increase accountability.

On May 17th, the House Financial Services Subcommittee on Capital Markets held a hearing to discuss a bill called the Investment Advisers Modernization Act of 2016. Far from actually modernizing the industry, the bill rolls the clock back to a time when private fund advisers operated in the shadows, without meaningful oversight. The bill would enable the exploitation of investors and reduce the information available to regulators to address systemic risk by rolling back key reporting requirements, and by interfering with the Securities and Exchange Commission’s ability to investigate fraud at individual firms. (For a full breakdown of the problems with this bill, please see AFR’s opposition letter).

One of the witnesses who testified was Jennifer Taub, a Professor at Vermont Law School and author of Other People’s Houses, a book on the foreclosure crisis. Professor Taub pointed out in her written testimony that the Investment Advisers Modernization Act could not only “undermine investor protection and trust, which could inhibit or drive up the cost of capital,” but would also “allow certain private equity advisers and other private fund advisers that have been exposed as lacking in recent SEC examinations to hide their tracks.”

We need fewer special exceptions for private funds, not more. Instead of pursuing still more deregulation, Congress should be focused on closing the carried interest loophole — a tax loophole that allows billionaire Wall Street fund managers pay taxes at a lower rate than teachers, nurses, and firefighters (and one that Senator Tammy Baldwin and House Ways and Means Committee Ranking Member Sander Levin have been working to close).

Another bill discussed at the May 17th hearing was the “SEC Regulatory Accountability Act.” This bill would impose a host of unworkable new burdens on the agency — burdens designed to make effective agency action virtually impossible. As Professor Taub noted in her testimony, there are already many requirements the SEC must meet prior to issuing new regulations, including an economic analysis. “The existing requirements set out several speed bumps,” Professor Taub said. “The proposed requirements are tire shredders designed to bring progress to a crashing halt.”

Agencies like the SEC already meet a high burden prior to issuing regulations — the Majority on the House Financial Services Committee shouldn’t be working to hamper their ability to identify risks and enforce the law. This focus on creating new costs and new bureaucracies that will impede enforcement benefits ultra wealthy private equity fund managers, but leaves investors and the general public footing the bill when fraud goes unchecked.


Americans for Financial Reform is a nonpartisan coalition of over 200 organizations fighting for a safer and fairer financial system. To learn more, visit our website, or find us on Facebook or Twitter.