Stating the need for a self-regulatory organization for investment advisers similar to the brokers, the Bush administration intervened in the broker-dealer/investment adviser regulatory war. In the 218-page “Blueprint for a Modernized Financial Regulatory Structure” released today, the Treasury Department said that “self-regulation of the investment advisory industry should enhance investment protection and be more cost-effective than direct SEC regulation. Mr. Paulson outlined the plan, which calls for the Federal Reserve Board gaining increased power to oversee the soundness of financial service companies that could affect market stability. “Given its traditional central bank role of promoting overall macroeconomic stability, the Federal Reserve is the natural choice for the important task of market stability regulator,” he said at a press conference.

The plan states that all federal bank charters could be combined into a single regulatory agency that would also include a federal insurance charter. A “conduct of business regulator” would handle consumer protection issues such as disclosures, business practices, chartering and licensing financial firms as well as enforcement. Hedge funds and private equity would come under Fed supervision if the agency determined they could pose a systemic risk to markets. “Thus, in effectuating this statutory harmonization, Treasury recommends that investment advisers be subject to a self-regulatory regime similar to that of broker-dealers,”