The long road to financial regulation is nearly at is end as the House passed the final compromised version of the Dodd-Frank Wall Street Reform and Consumer Protection Act on June 30 with a vote of 237-192, largely along party lines.
Being over 2,000 pages in length, the bill touches on nearly every aspect of the financial industry. Here are a few of the highlights:
- Creation of the Consumer Financial Protection Bureau with authority to examine and enforce regulation for banks and all mortgage-related businesses.
- New requirements on credit rating agencies including provisions to prevent any conflict of interest and increases in the liability credit rating agencies hold over the products they rate.
- Brings hedge funds and private equity advisors under regulation of the SEC.
- Reforms over-the-counter (OTC) derivatives by requiring all derivatives that can be cleared to be cleared through central clearing and exchange trading, and closes regulatory gaps by providing both the CFTC and SEC authority to regulate OTC derivatives.
- Improves mortgage rules such as requiring lenders to verify a borrower’s ability to repay, prohibiting unfair lending practices that incentivize subprime loans and establishes penalties for irresponsible lending.
- Requires companies that sell products such as mortgage-backed securities to retain at least 5% of the credit risk.
As of press time, the bill still needed to pass the Senate before it can be signed into law. For a more in depth review of how the bill will affect derivatives and hedge funds, see “Are U.S. markets ready for reform?”