More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Schapiro "faces many more hurdles in the coming months, especially as she works to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act," said Rep. Paul Kanjorski (D-Pennsylvania), chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, during an SEC oversight hearing held Tuesday, July 20. "This statute grants the Commission many new powers and endows it with significant new responsibilities."
Kanjorski said in his opening remarks that under the Dodd-Frank reform bill the SEC would "independently and in cooperation with other agencies, write and police more than 100 new rules on issues like the sale of derivatives, the fiduciary duty of broker/dealers, the nomination of board directors by investors, and mandatory arbitration clauses inserted into securities contracts."
Schapiro added during her comments that the SEC would also be required to perform 20 new studies. Kanjorski said he would hold a series of oversight hearings to gauge the SEC's progress in implementing the reform measures laid out in the Dodd-Frank bill.
When asked by lawmakers if she felt confident that the Commission could handle its new workload, Schapiro said that the SEC would "have to double our efforts in order to get the work done" under the Dodd-Frank bill. Schapiro noted that if President Obama's $1.26 billion budget for the agency in FY 2011 is enacted, which amounts to a 12% increase over the FY 2010 funding level, it would permit the SEC to hire an additional 374 professionals, a 10% increase over FY 2010.
"That would bring the total number of staff to about 4,200," Schapiro said. The President's proposed FY 2011 budget also included a request for $24 million to begin implementation of the President's financial reform proposal.
With the specific provisions of the legislation in place, Schapiro said in her testimony, "we have been working to develop estimates of the resources that will be needed to achieve the full implementation of Congress' regulatory reform mandate. While the dollar cost of full implementation will depend greatly on the effective date of new rules, the timing of hiring, and other factors, we currently estimate that the SEC will need to add approximately 800 new positions over time in order to carry out the new or expanded responsibilities given to the agency by the legislation."
As the agency takes on the task of implementing the Dodd-Frank changes, Kanjorski told Schapiro not to hesitate to ask Congress for more legal authority if the agency "ran across" other changes that needed to be implemented. He asked Schapiro if she had any immediate concerns about "shortfalls" in the reform bill, namely budgetary ones. Schapiro responded that while the SEC had asked Congress to grant the agency self-funding under reform changes, "that was not accomplished" under the Dodd-Frank bill "but we are grateful for the flexibility that will allow us to maintain a reserve fund to fund technology projects...and present our budget to Congress and the Administration," she said.
When questioned about deadlines the reform bill placed on the agency to write rules and regulations, Schapiro said that the SEC planned to have "robust comment periods" as the regulator would need "lots of input about what those contours of the regulation need to look like." Schapiro said the agency would seek public comment, for instance, on putting brokers under a fiduciary standard of care.
Kristina Fausti, director of legal and regulatory affairs for Fiduciary360 (fi360), says that the SEC will likely issue a public notice asking for input on putting brokers under a fiduciary standard as soon as the President signs the Dodd-Frank bill into law on July 21 since the SEC has "such a short time frame [six months] to complete its study and report" on fiduciary duty.Read more about the financial reform bill: marketplace winners and losers; impact on advisors, broker/dealers, and banks; the fiduciary standard for brokers; and the history of financial reform