Small Business Gets Breaks in House FinancialOverhaul Bill
WASHINGTON — Lawmakers are adding sweeping exemptions to financial-regulation legislation that would benefit small businesses, a move that is irking some consumer groups and liberal lawmakers who contend that could compromise the effectiveness of the overhaul.
Bills currently under consideration in the House exclude thousands of community banks from oversight by the proposed Consumer Financial Protection Agency, and transfer oversight of small investment advisers to state regulators. The latest move came Tuesday, when a House panel voted to exempt small public companies from complying with a provision of the 2002 Sarbanes-Oxley law, which was passed after a series of corporate scandals earlier this decade.
The task for Democrats is finding enough compromises to make the bill palatable to Republicans, while not alienating liberal members. Democrats are also trying to be sympathetic to small-business groups, who argue they didn’t contribute to the financial crisis and shouldn’t have to endure more regulation. The Obama administration has been making an effort to help small business, too, a weak spot in the economy.
The series of moves, which have not been finalized, are unnerving many on the left, who say the carve-outs diminish the administration’s effort to plug holes and change the regulatory system to prevent another crisis.
Jen Psaki, deputy White House press secretary, said: “Our focus must be on addressing the threats posed to investors and consumers by large, interconnected companies, rather than placing an undue burden on small businesses. We are working closely with Congress to determine the best vehicle for getting that accomplished.”
The changes to Sarbanes-Oxley focus on Section 404 of the law, which has long been controversial because of the costs involved. That provision requires companies and their auditors to keep closer control over their financial reporting. Companies with less than $75 million in market capitalization have been exempt from complying with certain elements, but the provision is set to expire next year.
An amendment introduced by Reps. Scott Garrett (R., N.J.) and John Adler (D., N.J.), and backed by the administration, would make it permanent. The change passed the House Financial Services Committee by voice vote Tuesday, and it faces a recorded vote in the panel Wednesday, before the full bill is voted on.
“It’s odd that I should be defending the White House,” Mr. Garrett said. Mr. Adler said he spoke with White House Chief of Staff Rahm Emanuel three times recently about giving small businesses relief.
House Financial Services Chairman Barney Frank (D., Mass.) and Rep. Paul Kanjorski (D., Pa.) both oppose the amendment, as do left-leaning consumer-advocacy groups.
Mr. Emanuel negotiated with Mr. Adler to avoid a more damaging amendment that would have exempted firms already covered by Sarbanes-Oxley, those with market caps of less than $700 million, Mr. Frank told reporters.
“Just because accounting fraud at a small company doesn’t blow up the whole stock market, I don’t think that makes a huge difference to people who lose their money,” said Barbara Roper, director of investor protection with the Consumer Federation of America. The argument that the rule should be changed in relation to the financial crisis is “a ridiculous argument on the face of it,” she said.
The bill pending before the House would also shift oversight of investment advisers who manage up to $100 million in assets, including those who manage hedge funds, to state securities regulators from the Securities and Exchange Commission. That would transfer 43% of the currently registered investment advisers from the SEC to states, according to a SEC staff member.
SEC Chairman Mary Schapiro said earlier this week that she didn’t oppose a move, but “I don’t want to just pass the problems around the map.”
Later Wednesday, the House panel is planning to mark up another bill that would only require companies with more than $10 billion in assets to pay into a fund used to wind down systemically important institutions that fail.
Mr. Frank’s committee has already exempted banks with less than $10 billion in assets from being regulated by a proposed consumer agency. Such community banks would still have to follow rules passed by the new agency, but would be examined by federal bank regulators, as is currently the case. The Treasury Department’s proposal would have placed all banks under the new consumer regulator.
—Deborah Solomon and Fawn Johnson contributed to this article.
Published on 07/11/2009 15:49:39