US House Panel Gears Up For Hedge Fund, Credit-Rater Votes

Kanjorski said Friday he expects the votes will take a day or more. Once those are completed, the committee will start debate on other proposals drafted by House Financial Services Chairman Barney Frank (D., Mass.) that would create a new regulatory structure to patrol for risks that may cause ripple effects in the markets. Already the committee has completed work on a derivatives bill and a proposal to create a new consumer protection watchdog.

One of the most contentious bills on next week's agenda is likely to be the credit-rating measure. The bill would make it easier for investors to win lawsuits against firms for poor quality ratings, curb conflicts of interest and empower the SEC to test and audit firms' rating methodology.

Kanjorski said he thinks raters engaged in "almost criminal" behavior after they issued positive ratings on toxic securitized mortgages, and he suggested that this bill is just the first step in dealing with raters.

"By God, at the very least the American people should [be able to] sue these agencies if they haven't performed in accordance with their methodology," he said.

He did, however, agree to remove another even more controversial provision originally included in his first draft of the bill that would have forced raters to be held liable for the wrong-doings of their competitors.

Kanjorski said he floated the idea hoping it might help curb inherent conflicts at Standard & Poor's, Moody's, and Fitch Ratings, which are paid by debt issuers for ratings.

"It certainly wasn't ready for prime-time," he said. "Rather than holding up the process, we pulled it out."

Another area likely to spark debate Tuesday is Kanjorski's bill on hedge-fund regulation. The bill would force the advisers of many private funds to register with the SEC and impose new record-keeping and disclosure requirements.

Although the hedge-fund industry has signaled support for registration requirements, it has said that advisers to all private pools of capital should be included. Kanjorski's bill exempts advisers of venture-capital funds, although he said they would still be required to file certain disclosures with the SEC.

The third bill on Tuesday's agenda contains numerous changes the SEC has been pushing for to beef up its authority. It would create a harmonized fiduciary standard for stockbrokers and advisers who offer financial advice, allow the SEC to pay informants who provide key details in enforcement cases and empower the SEC to ban brokers from requiring customers to sign mandatory arbitration clauses.

Kanjorski said the bill contains "about 60 corrections" that the SEC has asked for to "improve the quality and standard of operations for the protection of investors."

The last bill on the table, meanwhile, would create a federal insurance office to "elevate the intellectual understanding of the insurance industry," Kanjorski said. The office wouldn't directly regulate insurance, which is currently done state by state, but would help the federal government collect data about the industry and identify risks that some firms may pose to the financial system.

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@ dowjones.com

  (END) Dow Jones Newswires
  10-23-091747ET
  Copyright (c) 2009 Dow Jones & Company, Inc.