More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Working to finalize close to 50 rules, the Commodity Futures Trading Commission (CFTC) approved five on Thursday, including one designed to combat fraud and manipulation in derivatives trading.
While the CFTC is behind schedule in rulemaking according to the Dodd-Frank timetable, it has picked up the pace, scheduling additional meetings in the coming months and scheduling votes on the remaining rules in stages over the course of the rest of the year.
Thursday's meeting saw the finalization of rules on:
- Agricultural commodity definition
- Business affiliate marketing and disposal of consumer information rules
- Privacy of consumer financial information—conforming amendments (part 160)
- Prohibition on the employment, or attempted employment, of manipulative and deceptive devices, and prohibition on price manipulation
- Large trader reporting for physical commodity swaps.
Perhaps the most significant among them was the one designed to counteract market manipulation and fraud. Despite comments that suggested that wording was too broad or that wording specifying attempts, rather than successful efforts, at fraud and manipulation, should be deleted, the CFTC passed it. Chairman Gary Gensler (left) of the CFTC said of the action, "This closes a significant gap as it will broaden the types of cases we will pursue and improve the chance of prevailing over wrongdoers. It is a significant rule."
Gensler said in his opening statement, "This spring, we substantially completed the proposal phase of rule-writing and further benefited from an extra 30 days for public comment. The staff and commissioners now are turning toward final rules."
Implementation of derivatives rules was delayed for 15 months by a party-line vote of the House Financial Services Committee in May, with Republicans pushing through H.R. 1573 "over the unanimous objection of committee Democrats," according to Sen. Barney Frank, D-Mass.
Further questions, as previously reported by AdvisorOne, remained to be answered, since Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Capital Markets Subcommittee, sent a follow-up letter to Gensler on June 3 urging him to respond to a letter he had sent in early March with a host of questions regarding the derivatives title under the Dodd-Frank Act.
Despite the extended 30-day comment period and delay in derivatives rules implementation, Jill Sommers, a CFTC Republican commissioner, has, according to a Reuters report, expressed concern that the planned pace for rulemaking will lead to "haphazard" regulation.
She said that the agency plans votes on at least 17 rules in July and August, 20 in September and October and nine in November and December. In the report, she was quoted saying, "If we stick to such as a schedule, I foresee a process that haphazardly requires votes to be taken when the commission has not had the time to sufficiently consider all of the implications of the final rules."
The anti-manipulation rule goes into effect 30 days after their publication in the Federal Register. They were published Thursday, so they will be in force in early August.