Obama plan seen as vote of confidence in SEC

WASHINGTON (Reuters) - U.S. securities regulators would gain powers under the Obama administration regulatory overhaul, and be certain to face increased pressure to exercise its authority wisely and thoroughly as recession-battered investors demand that wrongdoers get punished.

Under the administration plan to revamp the country's financial regulation, the U.S. Securities and Exchange Commission holds onto most of its role as markets regulator and investor protector and gets new tools to police markets.

Instead, the agency would gain authority to establish a fund to pay whistleblowers -- a measure the head of the agency has been advocating. It would also gain increased power to improve and expand sanctions so that the SEC can better enforce securities laws.

Speculation had been rife that Obama would try to strip the SEC of its powers amid regulatory lapses such as the failure to stop Bernard Madoff's $65 billion fraud and its oversight of the largest investment banks. Madoff partially settled the SEC action against him on Tuesday without having to admit any wrongdoing.

"By expanding the commission's enforcement sanctions authority, Obama is casting his support behind a reputationally debilitated agency," said Jacob Frenkel, a former SEC enforcement lawyer and now a partner at Shulman, Rogers, Gandal, Pordy & Ecker PA in Rockville, Maryland.

The SEC gains authority to oversee advisers of the $1.3 trillion hedge fund industry and other private pools of capital.

It gains some jurisdiction over derivatives, and does not lose any of its authority to a new independent Consumer Financial Protection Agency, which would have authority to supervise products such as credit cards and mortgages.

The administration's plan names the Federal Reserve as the regulator for large investment bank holding companies after the largest investment banks like Lehman Brothers either collapsed or reorganized under the SEC's watch in 2008.

However, the plan allows for the SEC to be appointed as the conservator or receiver when the largest subsidiary of the failing firm is a broker-dealer or securities firm.

The Obama administration wants more federal regulators scrutinizing the landscape for gaps in consumer protection and proposes the creation of a council comprised of the heads of the SEC, Federal Trade Commission and new consumer protection agency to do this job,

The SEC's newly created investor advisory committee, which was set up to give retail investors more say in the agency's work, would be made law under the White House proposal.

In addition, the SEC would be directed to establish a fiduciary duty for broker-dealers who offer investment advice.

"The expansion of fiduciary duty to broker dealers is an essential protection for retail investors, which has long been needed, and is a major advancement for mom and pop investors," said Richard Ferlauto, director of pension and benefit policy at labor federation the American Federation of State, County and Municipal Employees.

(Reporting by Rachelle Younglai)