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Bill Calls for Study & Gives Authority to Restrict Arbitration

A bill that would significantly impact the financial industry was created last Friday, after endless hours of negotiation between the House and Senate regarding their separate versions.The Dodd-Frank Wall Street Reform and Consumer Protection Act calls for a more powerful group of regulators who will enforce limits on risky activities and requires banks to possess more money in reserve in the event of an economic downturn.The bill is nearly 2,300 pages long and, among other things, includes the following:

  1. Study: A study must be completed no later than 6 months after the enactment date of the Act. The study will include recommendations regarding how to improve investors’ access to registration information of investment advisers and will analyze the advantages and disadvantages of centralizing this data in the Central Registration Depository and Investment Adviser Registration Depository systems.
  2. Authority to Restrict Mandatory Pre-Dispute Arbitration: A new subsection will be added to Section 15 of the Securities Exchange Act of 1934, which will give the Securities and Exchange Commission the authority to prohibit or enforce conditions or limitations of agreements requiring arbitration for “any future dispute between (the client and broker dealer or municipal securities dealer) arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions or limitations are in the public interest and for the protection of investors.”

The Investment Advisers Act of 1940 will be amended, which will also give the Securities and Exchange Commission the authority to restrict mandatory pre-dispute arbitration.The full text regarding the Dodd-Frank Wall Street Reform and Consumer Protection Act can be viewed by clicking here.

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