Thursday, May 21, 2009

The head of the Securities and Exchange Commission is objecting to a plan being weighed by the Obama administration to create a new financial watchdog for consumers that would assume oversight of mutual funds.

The SEC chief’s split with the administration shows how hard it may be for a broad overhaul of financial rules to overcome turf wars among various regulators and for a consensus to be reached on Capitol Hill.

SEC Chairman Mary Schapiro on Wednesday said she opposed the plan discussed Tuesday night by Treasury Secretary Timothy F. Geithner and other administration officials that would chip away at the SEC’s powers. She said giving any new entity authority over mutual funds would lessen the government’s protection of investors - her agency’s core mission.

“I would question pretty profoundly any model that would try to move investor protection functions out of the Securities and Exchange Commission,” Ms. Schapiro told reporters at the agency’s headquarters. “Investor protection is woven through everything that happens in this organization.”

Many of the SEC’s responsibilities - such as companies’ financial disclosures, shareholder rights, stock trading, brokerage-firm practices and mutual funds - involve investor protection, Ms. Schapiro said.

“So it’s not a discrete thing that gets moved away without really damaging the fabric of the entire investor-protection regime,” she said.

The plan the administration is weighing would centralize the enforcement of laws that protect consumers of financial products, such as credit cards, mortgages and mutual funds. That mission is now spread across a patchwork of federal and state agencies, including the SEC, Federal Reserve and Federal Trade Commission.

Any changes to the nation’s financial oversight would require congressional action, and it’s not clear whether lawmakers will unite behind a single approach this year.

Rep. Barney Frank, Massachusetts Democrat, who heads the House Financial Services Committee, favors in principle changes that would bolster consumer protection, but in this case “there’s no proposal right now to endorse,” said his spokesman, Steve Adamske.

Ms. Schapiro’s comments marked her first sharp public breach with the administration over an overhaul of rules designed to prevent another financial crisis. In recent weeks, she has told Congress that she thinks the SEC must play a key role as an independent watchdog protecting investors in any new regulatory system.

She also has said she favors an idea floated by Sheila Bair, head of the Federal Deposit Insurance Corp., for a new “systemic-risk council” to monitor large institutions against financial threats. This council would include the Treasury Department, Federal Reserve, FDIC and SEC.

By contrast, the White House leans toward recommending that the Fed alone become a new supercop for “too-big-to-fail” financial companies that could set off another meltdown.

Ms. Schapiro said she’s concerned about an “excessive concentration of power” over financial risk in any single agency.

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