More On Legal & Compliancefrom The Advisor's Professional Library
- U.S. Securities and Exchange Commission Information This information sheet contains general information about certain provisions of the Investment Advisers Act of 1940 and selected rules under the Advisers Act. It also provides information about the resources available from the SEC to help advisors understand and comply with these laws and rules.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
The nation's top regulators told lawmakers on Thursday that they were working at break-neck speed to implement the scores of new rules, and to conduct the many studies, that were required under the Dodd-Frank Act.
Securities and Exchange Commission (SEC) Chairman Mary Schapiro, for instance, told members of the Senate Banking, Housing & Urban Affairs Committee that Dodd-Frank included over 100 rulemaking provisions applicable to the SEC, many of which required action within one year. The Act, she continued, also required the SEC to conduct more than 20 studies and create five new offices.
Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, said in his opening remarks at the oversight hearing to explore regulators' progress on implementing provisions of Dodd-Frank, that while he believed the economy "will grow again," another financial crisis is inevitable. "Greed and recklessness will rear their heads again," he said. However, "I can tell you with confidence that, when that day comes, we have provided regulators with the tools they need to see it coming and put a stop to it in time." Whether regulators will do so, he continued, "largely depends on the foundation laid by those of you before us here today."
Schapiro testified before the Committee along with Federal Reserve Board Chairman Ben Bernanke; Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC); Sheila Bair, chairman of the Federal Deposit Insurance Corp. (FDIC); Neal Wolin, Deputy Secretary of the Treasury; and John Walsh, Acting Comptroller of the Currency. Treasury Secretary Timothy Geithner, along with the other regulators testifying before the Committee, will be members of the Financial Stability Oversight Council, which was created under Dodd-Frank and will hold its first meeting on Friday. The new president of the North American Securities Administrators Association (NASAA), David Massey, is also a member of the Council.
Schapiro told Committee members that the SEC "is moving rapidly" to submit its report concerning the effectiveness of the existing standards of care for broker-dealers and advisors to Congress by January. She told Congress that the SEC received more than 3,000 comment letters on the study, and that SEC staff is now reviewing those comments. "The views of these commenters will be reflected in the report on our study."
As part of the study process, Schapiro said the SEC established a cross-divisional working group to implement the study. "To help further inform our study and consistent with our public outreach on these issues, from August to October, the working group is meeting with as many interested parties representing a variety of perspectives as possible." The SEC also requested assistance from state regulators and FINRA with the aspects of the study involving their efforts, such as examinations and enforcement, she said.
Once the study is completed, Dodd-Frank gives the SEC the authority to write rules, "including rules that could create a uniform standard of conduct for professionals who provide personalized investment advice to retail customers," Schapiro said. She pointed out that under the Act, "any new [fiduciary] standard can be 'no less stringent' than the standard applicable to investment advisers under sections 206(1) and (2) of the Investment Advisers Act of 1940. The Commission's ultimate rulemaking in this area will, of course, be informed by what we learn from our study and from the comments we receive."
By the end of October, Schapiro said the SEC expects to have created the new Office of Municipal Securities, and the Commission is currently in the process of establishing a new Office of Credit Ratings and is actively recruiting a new director.
By July 2011, all large hedge fund advisors and private equity fund advisors will be required to register with the Commission. Schapiro said she the SEC staff is planning to propose rules on these matters between October and December of this year.
As for a comprehensive framework for regulating over-the-counter derivatives, Schapiro said that the SEC along with other regulators, particularly the CFTC, expects to "propose and adopt rules in a series of actions, beginning in October and proceeding over the next few months."