Financial Regulatory Forum

Offshore investment funds included in U.S. Congress registration bill

October 27, 2009

U.S. Rep. Paul Kanjorski (D-PA), chairman of the House Financial Services Subcommittee on Capital Markets, briefs reporters on the challenges and opportunities of reforming the U.S. financial markets, at the Reuters Financial Regulation Summit  in Washington, April 27, 2009.   REUTERS/Mike Theiler   (UNITED STATES POLITICS BUSINESS) By Kevin Drawbaugh and Rachelle Younglai
WASHINGTON, Oct 27 (Reuters) – Offshore funds would have to register with U.S. regulators under an amendment added to a bill mandating more oversight of private capital pools under debate on Tuesday in a U.S. congressional committee.

The bill would force hedge funds and private equity funds to register with regulators to bring more transparency to a segment of the financial world that is only loosely policed.

Passage of the bill by the U.S. House of Representatives Financial Services Committee was expected, possibly on Tuesday or Wednesday, as the panel works its way through a handful of fairly noncontroversial pieces of legislation in a broad push for U.S. financial regulatory reform after the global crisis.

Democratic Representative Paul Kanjorski amended his own registration bill to add offshore funds, saying it would help regulators get a better grasp of financial system risks.

“There is a common psychology to use the Cayman Islands to hide funds. The whole point of these bills is to get a large enough understanding of the total amount of capital that the systemic risk regulator should be aware of,” said Kanjorski, whose bill also exempts venture capital funds from registration with the Securities and Exchange Commission.

In the aftermath of the worst financial crisis in decades, congressional Democrats and the Obama administration are trying to tighten regulation of banks and capital markets.

SEC Chairman Mary Schapiro warned broadly at a Wall Street conference on Tuesday against too many exemptions and said she would work with Congress to avoid creating new carve-outs that “could come back to haunt investors in later years.”

The Financial Services Committee was also expected on Tuesday to work on bills to beef up the SEC and certain investor protection standards.

The push for reform faces stiff opposition from banking industry lobbyists and Republicans. It is making incremental progress in the House, where Democrats are in firm control.

The outlook is unclear in the Senate, where political parties are more closely split and lawmakers are still far apart on fundamental financial reform issues.

The committee delayed action on Tuesday on legislation that would impose federal government oversight for the first time on the insurance industry, possibly the most contentious of the four proposals being handled by the panel this week.

Now regulated at the state level, the nation’s 6,000 insurers are divided on the proposal to set up a National Insurance Office inside the Treasury Department. It would gather data on the industry and represent the United States in international insurance discussions.

The office would not regulate the industry. But some opponents of federal regulation fear the office is a first step toward that. Some large insurers favor federal regulation.

Debate and a vote on the bill were scheduled for this week, but committee Chairman Barney Frank, a Democrat, postponed it.

“I’m not going to bring it up … I believe that within a fairly short period of time we’ll be able to bring up the insurance bill,” Frank said at the opening of a two-day committee working session.

Frank said concerns were raised about the insurance bill by members of Congress and state regulators. “They are obviously not trying to hold it up forever and they won’t be allowed to … We will ultimately produce a product,” Frank said.

(Editing by Andrew Hay)
((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax)))

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