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Regulation and Compliance > Federal Regulation > SEC

SEC Moving Forward on Fiduciary Rule, Clayton Says

By Melanie Waddell

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Securities and Exchange Commission Chairman Jay Clayton on Tuesday signaled that the agency is moving ahead on a coordinated fiduciary rule with the Department of Labor.

Sen. Jerry Moran, R-Kansas, told Clayton during the Tuesday hearing held by the Senate Appropriations Committee’s Subcommittee on Financial Services and General Government regarding the agency’s fiscal 2018 budget that he’s “worried there’s a lack of regulatory harmonization occurring” between the SEC and Labor regarding a fiduciary rule, and asked Clayton for any updates regarding the SEC’s “actions to sort of catch up with the Department of Labor when it comes to the fiduciary duty rule.”

Clayton responded by first citing the June 1 request for information the agency released “in light of Labor moving forward with the fiduciary rule, at least the first phase of it.”

Clayton continued: “Look, it’s not separate; what’s happening at the Department of Labor is going to affect the markets we [the SEC] regulate and vice versa. It’s my intent as chairman to try and move forward and effectively deal with that, in a way that is coordinated so that our Main Street investors have access to investment advice and access to investment products. I don’t want to see any of these actions that we would take reduce the access to investment advice or the access to investment products, at the same time very much fulfilling our investor protection mission.”

Moran then asked Clayton if there’s a “level of cooperation” at the Deparatment of Labor with the SEC “that didn’t exist in the past?”

Responded Clayton: “I am confident that we’re going to have cooperation in this regard. It’s a very complicated issue. I don’t think it would have been here this long if it weren’t complex, but I’m confident that we’re going to cooperate.”

During a separate hearing the same day on Labor’s FY 2018 budget, Sen. James Lankford, R-Okla., asked Labor Secretary R. Alexander Acosta where the conversation stood with the SEC regarding “cooperation” on the fiduciary rule.

Acosta responded: “Previously the SEC did not work jointly with the Department of Labor; as I indicated quite publicly, I think that the SEC has important expertise and that they need to be part of the conversation. And I asked the chairman of the SEC if the SEC would be willing to work with us. The chairman indicated his willingness to do so. It is my hope as the SEC also receives a full complement of commissioners, that the SEC will continue to work with the Department of Labor on this issue.”

Further 5% Boost in Advisor Exams

With the SEC budget request for fiscal 2018 of $1.602 billion, which is “essentially the same as our FY 2017 appropriation,” Clayton said that “more than 50% of the requested resources will be invested in the agency’s enforcement and examination programs,” allowing the agency to “root out fraud and wrongdoing in our financial system.”

“I’m comfortable that we can continue to fulfill our mission at this funding level,” Clayton said. 

The resources will also allow the securities regulator “to evaluate broker-dealers, investment advisors and other regulated entities that interact with investors for compliance with investor protection rules,” Clayton continued, adding that his goal is to achieve a “further 5% increase in the number of investment advisor exams” in fiscal 2018.

In 2016, Clayton noted, the SEC reassigned approximately 100 staffers to the national examination program’s investment advisor examination unit.

As a result of the shift, the SEC “is on track to deliver a 20% increase in the number of investment advisor examinations in the current fiscal year,” Clayton told lawmakers. “I expect that for at least the next several years we will need to do more each year to increase the agency’s examination coverage of investment advisors in light of continuing changes in the markets.”

In the coming fiscal year, the agency’s Office of Compliance Inspections and Examinations also plans to increase “the number of inspections to assess compliance with commission rules designed to ensure that the cybersecurity infrastructure that is critical to the U.S. securities markets is secure and resilient.”

OCIE also will continue to bolster its risk-based approach to exam selection through the “continued development of data analytics tools,” Clayton said, to help identify activities “that may warrant further examination and efficiently focus our examination efforts.”

President Donald Trump’s budget would also eliminate the key fund — the Reserve Fund — that the SEC uses to beef up cybersecurity measures and deter fraud. Clayton told lawmakers Tuesday that he’s “seeking to continue to have the reserve fund at $50 million,” as it’s “very helpful to have a dedicated source of funds for technology.”

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