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Regulation and Compliance > Federal Regulation > SEC

Republicans: SEC Has Not Justified Fiduciary Standard Rulemaking

By Arthur D. Postal

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WASHINGTON BUREAU – Republican members of the House Financial Services Committee are opposing a U.S. Securities and Exchange Commission (SEC) decision to proceed with development of a uniform fiduciary standard regulation.

A recent SEC study on standard-of-care issues did not provide an adequate basis for changing the existing rules, the Republicans write in a letter to SEC Chairman Mary Schapiro.

The committee’s capital markets subcommittee will conduct a hearing soon to give Dodd-Frank compassRepublicans a chance to air their concerns, the Republicans say.

The letter was signed by Rep. Scott Garrett, R-N.J., and 13 other Republican Financial Services Committee members.

The SEC staff prepared the standard-of-care report to implement Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Today, investment advisors who are giving retail customers personalized investment advice must use a fiduciary standard of care, meaning that they must put customers’ interests ahead of their own. Insurance agents and securities brokers typically use a suitability standard, meaning that must verify that the products sold to customers suit those customers’ needs.

Members of Congress debated whether to impose a fiduciary standard on brokers and

dealers. Instead, they included a provision requiring the SEC to study the issue before proceeding with efforts to develop a regulation.

The SEC staff concluded in their study that “when broker-dealers and investment advisers are performing the same or substantially similar functions, the SEC should consider whether to harmonize the regulatory protections applicable to such functions.”

Dodd-Frank Section 913 requires the SEC to present the results of the standard-of-care study to the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee.

In the letter, Financial Services Committee Republicans say that the SEC staff study “does not adequately recognize the risk that its recommendations could adversely impact investors.”

The SEC needs additional justification to show that there is need for a new rule before proceeding with rule-making, the Republicans say.

Dodd-Frank Section 913 gives the SEC the discretion to impose a uniform standard but does not mandate it, the Republicans add.

Two Republican members of the SEC, Kathleen Casey and Troy Paredes, said they disagree strongly with the recommendation of the SEC staff that the agency should proceed with fiduciary standard rulemaking.

Republican Financial Services Committee members share the concerns of Casey and Parades that the study’s “pervasive shortcoming is that it fails to adequately justify its recommendation that the SEC embark on fundamentally changing the regulatory regime for broker-dealers and investment advisors,” the Republicans say in their letter.

The SEC should conduct a thorough cost-benefit analysis, and it should assess “the broader practical impact that such changes might have throughout the entire financial marketplace,” the Republicans say.

Other fiduciary standard coverage from National Underwriter Life & Health:

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