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.
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
Just as a new poll of Americans shows their continued support for tough regluations on Wall Street under Dodd-Frank, regulators and lawmakers continue to sharply criticize the Financial Stability Oversight Council that the reform law created.
A poll conducted at the end of June by Lake Research Partners on behalf of Americans for Financial Reform and the Center for Responsible Lending found that voters agreed by “wide margins” (65%) that there should be more government oversight and regulation (62%) of financial companies.
Support for the law's extension of oversight to previously unregulated entities also remains strong: 75% of voters favor the law (53% strongly), compared to only 19% who oppose it. The popularity of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed in 2010, continues to extend across party lines, with 86% of Democrats, 69% of independents and 68% of Republicans favoring the law.
The poll found that by a 3-to-1 margin, voters agree that getting tougher on Wall Street will help prevent future crises, rejecting the counterargument that regulation will damage the economy. This is true of Democratic, independent and Republican voters alike – by margins of 85% to 7%, 78% to 9%, and 72% to 15%, respectively.
Yet in a recent speech, Michael Piwowar, one of the Republican commissioners at the Securities and Exchange Commission, said that the Financial Stability Oversight Council created under Dodd-Frank is actually the "Firing Squad on Capitalism."
Piwowar said during a July 15 speech before the American Enterprise Institute, that the financial stability council known as FSOC — the “Council” or the “Unaccountable Capital Markets Death Panel,” if you will — has “gained notoriety for, among other things, being unaccountable and non-transparent.”
Said Piwowar: “At least with the Dodd-Frank Act, however bad it is, what you see is what you get; unfortunately, the Council’s discussions and actions are being conducted largely in the dark.”
FSOC is charged with identifying risks to U.S. financial stability; promoting market discipline; and responding to emerging risks to the stability of the U.S. financial system. FSOC consists of 10 voting members and 5 nonvoting members including federal financial regulators, state regulators and an independent insurance expert appointed by the president.
The House’s recently passed spending bill, H.R. 5016, included an amendment put forth by Rep. Scott Garrett, R-N.J., chairman of the Capital Markets Subcommittee, which would prohibit the secretary of the Treasury and the head of the SEC — both voting members of FSOC — from designating nonbank financial companies as systemically important financial institutions (SIFIs).
FSOC, as created under the Dodd-Frank Act, “has the ability to label non-banking financial companies as systemically important and has essentially codified an endless cycle of too-big-to-fail,” Garrett said in a statement.
“With every reckless designation of a non-bank company as a SIFI, FSOC makes our economy more dangerous and unstable,” Garrett said after the bill’s passage. “FSOC is not working out as intended …We must prevent government regulators from expanding the doctrine of too-big-to-fail into other parts of our economy. And we must not allow too-big-to-fail to take root in the nonbank financial sector. These companies are too important as a counterbalance to the mega-banks for us to ruin them with crony capitalism.”
The SEC’s Piwowar said in his speech that he supported Garrett’s bill, noting that “within weeks” of Garrett’s bill being introduced, FSOC “clarified” its transparency policy. However, he added that FSOC’s “enhancements” make “only marginal changes to the Council’s processes, [and] do not alleviate my concerns about the lack of visibility into the Council’s deliberations and decisions.”
FSOC’s policy, Piwowar said, “still includes a non-exclusive list of reasons to close a Council meeting, which gives the Council members freedom to make subjective determinations of when it is not ‘possible’ or ‘practicable’ to keep a meeting open to the public.”
Piwowar said that he's spent "much of the last year trying to attend the Council’s meetings as a nonparticipating guest," only to be rebuffed, as has Garrett. "The fact that Congressman Garrett, a member of the House Financial Services Committee and chairman of its Subcommittee on Capital Markets and Government-Sponsored Enterprises, is being shut out is shocking, appalling and downright insubordinate," Piwowar said.
Piwowar said the he would "continue to fight for more SEC representation – and less prudential regulator representation – in deliberations" of the FSOC.
The Bipartisan Policy Center also recently recommended that Congress improve Dodd-Frank by increasing FSOC’s transparency. FSOC, the BPC said, “should allow market participants to make more informed decisions by releasing further information about its decision-making process, beginning with more detailed minutes similar to what is reported by the Federal Open Market Committee.”
Aaron Klein, director of the Bipartisan Policy Center’s Financial Regulatory Reform Initiative, said during a recent BPC event about the four-year anniversary of Dodd-Frank that FSOC’s recent clarification on its transparency policy “was a small step in the right direction.”
Klein said that the BPC hoped the FSOC could reach the point of transparency that the Fed eventually reached in releasing “detailed minutes” of its views on the economy.
“Over time, the Fed was able to get a point where the increased FOMC transparency to major substantial levels that have been a benefit of everybody,” Klein said. “It’s our view and hope that someday the FSOC minutes are viewed with as much anticipation by the markets and contain as much substance as the Fed FOMC minutes—those are market moving minutes. It’s okay for the FSOC to release information that is market moving. More transparency will increase the legitimacy of FSOC and serve to bolster its important function of coordinating the regulators.”
Related on ThinkAdvisor: