WASHINGTON -- A bill to boost investor protections and beef up the U.S. Securities and Exchange Commission by strengthening its power and doubling its budget was approved on Wednesday by a congressional panel.
The bill included two controversial amendments that would pave the way to allow shareholders to nominate corporate directors and exempt small companies from certain reporting requirements.
The House of Representatives Financial Services Committee voted 41-28 in favor of the bill to order the SEC to subject brokers and investment advisers to the same standards of client-care, while doubling the SEC's budget over five years and strengthening its law enforcement powers.
The measure is part of a broad effort to tighten bank and capital market regulation. It must go next to the full House for a vote. Its outlook in the Senate was uncertain.
"Our financial system has failed far too many investors for far too long and we must change course. I believe this bill has the capabilities to address many of the problems we continue to face," said Representative Paul Kanjorski, the Democratic sponsor of the bill, in a statement.
The bill would also set up a program to pay corporate whistleblowers who offer valuable tips to authorities, while curbing requirements forcing investors to enter into arbitration to resolve disputes with their brokers.
An amendment to the bill was approved that would empower the SEC to make it easier for shareholders to nominate corporate directors. The "proxy access" amendment, long sought by investor advocates, would give shareholders greater access to proxy statement ballots listing board nominees.
The vote was a defeat for the U.S. Chamber of Commerce and other business lobbying groups, which had urged the committee to reject the amendment, offered by Democratic Representative Maxine Waters.
Another amendment added to the bill would permanently exempt small corporations from a rule in 2002's post-Enron Sarbanes-Oxley law that requires publicly traded companies to get outside reviews and report on their internal controls.
The SEC last month decided to apply for the first time the so-called Section 404(b) rule to companies with a market capitalization of less than $75 million starting on June 15. The amendment would cancel that ruling.
The vote was a victory for the amendment's co-authors, Republican Representative Scott Garrett and Democratic Representative John Adler.
Garrett said in a statement that the amendment would "free small businesses from onerous regulations." But investor advocates warned against gutting the rule for small companies.
"Extensive research has shown that small companies have weaker controls over financial reporting, poorer quality financial reporting, and a higher incidence of both accounting fraud and errors," said Barbara Roper, director of investor protection at the Consumer Federation of America.
She said the amendment "represents more of the same anti-regulatory policy that landed us in our current mess."
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