The dull thud heard ‘round the world last Thursday when the regulatory-reform plan was rolled out in Congress was echoing through law firms too. Like all those senators who reacted tepidly, rank-and-file compliance lawyers — if there is such a thing — weren’t exactly jumping up and down either.
“The usual approach to a concept release like this is to treat it like a magazine you read on the train — flip through and get a feel for it,” said Laura Anne Corsell, a partner at Montgomery McCracken Walker & Rhoads in Philadelphia and chairwoman of the firm’s investment-management practice. Corsell was still flipping through it Thursday afternoon when she spoke to me almost 48 hours after it was leaked onto the Web, although it’s understandable that it would take awhile. The thing is arcane and thick, no surprise there. I’m still flipping through it.
Like good lawyers everywhere, Corsell is already telling people to get ready for it. “We are suggesting to our clients that they start implementing the compliance and governance and framework that they may in the future be asked to put into place,” she said.
IN DEFENSE OF HEDGE FUNDS AND MONEY MARKET FUNDS
A couple of things in the proposal, aka “ A New Foundation: Rebuilding Financial Supervision and Regulation,” jumped out at Corsell. Though it was no surprise, the piece of the plan that would require hedge funds to register with the government and open their books to regulators caused her to feel a twinge of sympathy. “I feel a little bit sorry for hedge funds — I don’t think they were the source of this problem,” she said.
On the other hand: “Regulation as an investment advisor is not all that big of a deal.”
She wonders about the stuff under the heading “Reduce the Susceptibility of Money Market Mutual Funds to Runs.” Here the plan calls for “eliminating the ability of a MMF to use a stable net asset value or requiring MMFs to obtain access to reliable emergency liquidity facilities from private sources.” Translated: when an investor puts a dollar into a money market fund, that investor should be confident that that dollar will be there until he or she takes it out. In September some money mutual funds “broke the buck,” as the saying goes, and that dollar for awhile was worth 97 cents or so. But the MMF market recovered and normalcy returned. “Money market funds have operated pretty well for over 30 years and I worry about anything that would tinker with that,” Corsell said.
GIVING THE FED A “BIGGER, FASTER CAR”
The reform plan would also let the Federal Reserve take over the role of super-regulator, an idea that caused lots of people — including Sen. Chris Dodd. chairman of the Senate Banking Committee — to mention the fable of the parent who gives his kid “a bigger, faster car right after he crashed the family station wagon.”
Joe Lynyak, a Los Angeles-based regulation lawyer at Venable, agreed. He told me this: “I was surprised at the extent to which they elected to defer to the Federal Reserve Board as being the primary enforcement entity.”
Lynyak, who knows what he’s talking here because he’s represented financial-service clients before a whole alphabet soup of regulators — “the OCC, the FDIC, the OTS, the SEC, the FTC and the California and New York Banking Department,” as his bio notes — suggested that among the proposals the finance industry might bridle at is the one to eliminate thrifts.
He summed up the state of play in six words: “It’s a place to start negotiating.”
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