In a bid before Congress to maintain the SEC’s capital markets regulator and investor protection roles in any regulatory reform, Securities and Exchange Commission Chairman Mary Schapiro also detailed plans to seek legislation from Congress to expand the agency’s powers and rule proposals it will consider in the coming weeks to strengthen its own rules.

In March 26 written testimony before the Senate Banking Committee, Schapiro said she supports the view that there is “a need for system-wide consideration of risks to the financial system and for the creation of mechanisms to reduce and avert systemic risks.” However, she said regulatory reform “must be accomplished without compromising the quality of our capital markets or the protection of investors.”

Calling a focus on investors “absolutely essential to any credible regulatory restructuring,” Schapiro said the SEC “must continue to be the primary regulator of important market functions and would be a critical party in contributing to any systemic risk regulator’s evaluation of risks.”

Schapiro stressed that any regulatory reform “must guarantee the Commission’s independence in the future.”

“There are other agencies of government that touch on what we do, just as what we do touches on other agencies of government,” she said. “But Congress created only one agency with the mandate to be the investors’ advocate.”

In an effort to modernize some of its rules regulating financial intermediaries, Schapiro said the SEC is considering, among other things, asking the lawmakers for legislation that would require registration of investment advisers who advise hedge funds, and possibly the hedge funds themselves. The agency is also mulling whether to recommend legislation to change existing rules that require a different regulatory regime for investment advisers and broker-dealers, which often provide similar services to investors. The SEC is also considering whether legislation is needed to fill other gaps in regulatory oversight, including those related to credit default swaps and municipal securities.

Meanwhile, Schapiro said she’s asked the staff to develop reforms to better protect investors when they place their money with a broker-dealer or an investment adviser, including a proposal for consideration that would require investment advisers with custody of client assets to undergo an annual third-party audit, on an unannounced basis.

The staff is also expected to recommend proposing a rule that would require certain advisers to have third-party compliance audits, and to recommend a rule requiring a senior officer from all broker-dealers and investment advisers with custody of investor funds to attest to the sufficiency of the controls they have in place to protect client assets. Schapiro said the list of certifying firms and the name of any auditor of the firm would be publicly available on the SEC’s Website.

Schapiro also plans to ask lawmakers to expand the SEC’s current authority to compensate sources in insider-trading cases to allow the agency to compensate whistleblowers that provide “well-documented evidence of fraudulent activity.”

As for its near-term regulatory agenda, Schapiro noted that, in the coming weeks, the SEC will consider proposals related to short selling, money market fund standards, investor access to public company proxies, credit rating agencies, and controls over the safekeeping of investor assets.

Schapiro’s testimony before the Senate came the same day Treasury Secretary Tim Geithner testified before the House Financial Services Committee. In his written testimony, Geithner outlined a framework for regulatory reform that, among other things, would require all advisers to hedge funds and other private pools of capital of a certain size to register with the SEC, and would subject all funds advised by an SEC-registered investment adviser to investor and counterparty disclosure requirements and regulatory reporting requirements. The plan also calls for the SEC to share the reports that it receives from the funds with a systemic risk regulator, which would determine whether any hedge funds could pose a systemic threat and should be subject to prudential standards.

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