In an effort to prevent another economic meltdown, President Barack Obama recently proposed the most sweeping financial regulatory system overhaul since the Great Depression. Many thought Obama's plan would strip the SEC of its powers and hand over control to the Federal Reserve. Since its inception, the SEC has been charged with regulating stock markets and the securities industry, including enforcing federal securities laws and regulations. As of recent, the SEC has come under harsh criticism, with some believing it was responsible for missing the signs of the impending financial crisis of 2008.
Initial reports of Obama's plan to reorganize the financial sector indicated that the SEC may take a backseat role in its financial market oversight. However, under Obama's plan, the SEC will retain most of its market power and and gain new tools to protect investors. Specifically, the SEC will be given oversight over the hedge fund industry. In addition, the SEC will be gain more authority over the enforcement of company disclosures, along with more exhaustive enforcement sanctions to ensure compliance with securities laws.
Although Obama's plan will give the SEC more expanded market power, the plan also recognizes the SEC's failure to properly oversee the country's largest financial firms, many of which collapsed under the SEC's supervision during the financial meltdown of 2008. Accordingly, Obama's regulatory overhaul will relinquish the SEC's power over these large financial firms, and instead will name the Federal Reserve as the supervisor and regulator of these firms to help prevent another collapse.
It is important to note that the new Obama plan is merely a proposal to overhaul the regulatory system. The fight in Congress is only beginning, as the Obama administration now tries to draft a bill that will give Obama the votes necessary to sign legislation on his proposed changes, which he hopes to accomplish by then end of 2009.