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Mass. Regulator Galvin Slams Financial Choice Act

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House Financial Services Committee Chairman Jeb Hensarling’s Financial Choice Act is “exactly the wrong path” to protecting investors, and includes “numerous provisions” that will “reduce transparency, expose retail investors to unjustified risks, and promote conflicts of interest,” says Massachusetts’ top securities regulator.

In an April 25 letter to Hensarling, R-Texas — whose committee plans to hold a hearing on the Financial Choice Act Wednesday — Commonwealth Secretary William Galvin slams the bill to replace Dodd-Frank as “a gift to the investment industry and Wall Street special interests.”

The Financial Services Committee approved the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (CHOICE) Act in September. 

The Committee plans to discuss the updated version of the bill, dubbed Financial Choice Act 2.0, on Wednesday.

“The Act purports to benefit Main Street and Mom and Pop,” Galvin wrote. “Instead, it is a generous gift to Wall Street and a grave threat to the interests of retail investors. Various provisions of the Act will have the effect of reducing the SEC’s rulemaking and enforcement powers; diminish or elimi­nate required disclosures; expose retail investors to high-risk segments of the securities markets, where they have often been hurt; reduce market transparency; and remove protections against severe financial conflicts of interest.”

Galvin noted that the Choice Act will go through “many iterations” as it moves through Congress, and that while he plans to weigh in with more detailed concerns, his letter takes issue with three areas: the need to protect the states’ police powers relating to securities, his opposition to provisions that preempt state regulatory authority and language in the Act to revoke the Labor Department’s fiduciary rule.

Labor’s fiduciary rule “addresses a longstanding problem by requiring that any person providing retirement financial advice must act in the customer’s best interest,” Galvin wrote. “The adoption of the rule rep­resents a victory for retirement investors; I urge that the rule be maintained and conscientiously administered,” he added, noting that the Massachusetts Securities Division has conducted “numerous enforcement actions relating to fraud and abuse in the sale of investments to retirement investors.”

The updated Financial Choice Act 2.0 still requires that Labor issue a fiduciary rule that’s similar to one put forth by the Securities and Exchange Commission.

Hensarling’s Financial Choice Act, Galvin asserted, is also “a direct threat to important police powers that allow the states to protect their citizens against fraud and financial abuse and that enable the states to avoid becoming havens for fraud.”

State securities regulators would be “severely hamstrung,” Galvin wrote, if Section 391 of the Act were to go into effect. “I strongly object to any language that dictates mandatory federal and state enforcement coordina­tion, and the designation of a ‘lead investigative agency’ that will head coordinated federal and state investigations.”

Maintaining the independent authority of the states, Galvin wrote, “is especially important in light of language in the Act that has the effect of reducing the SEC’s enforcement powers.”

Pro­visions of the Act “that mandate state and federal enforcement coordination are just thinly veiled attempts to similarly tie the hands of the states. Therefore, I urge that all references to state authorities be removed from Section 391 of the Act.”

State securities laws, Galvin continued, “enable the states to quickly stop frauds that are offered to investors within their borders and they permit the states to crack down on frauds that may originate from their jurisdictions, permitting the states to avoid becoming havens for fraud.”

Galvin also told Hensarling to remove or replace four provisions of the act that preempt state regulatory authority.


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