Securities and Exchange Commission Chairman Jay Clayton signaled Tuesday that the agency’s rule would not supplant the Labor Department’s fiduciary rule, just as the two nominees to fill the open commissioner spots expressed support for the agency coordinating with Labor and the states in crafting a fiduciary rule.
Yet, in Tuesday testimony at their nomination hearing before the Senate Banking Committee, Mercatus Fellow Hester Peirce and Columbia Law School professor Robert Jackson did not include a fiduciary rule among their list of top priorities the commission should tackle — citing cybersecurity, oversight of the Financial Industry Regulatory Authority and executive compensation as more pressing issues.
However, the two did air their views about Labor’s rule and the SEC’s role in a best-interest standard after being queried by Sen. Mike Rounds, R-S.D., who called Labor’s fiduciary rule “fundamentally flawed,” and stated that a fiduciary rule “should have been done at the SEC.”
Rounds asked Peirce and Jackson their views on Labor’s rule and on the SEC’s role in such a rulemaking.
Jackson, a Democrat, expressing his first public views on a fiduciary rule, responded that the SEC “should have an important role in the development of these fiduciary standards; it is a natural area for the SEC to do a rulemaking,” citing Clayton’s work with Labor and other regulators “to develop the SEC’s presence.”
Refraining from commenting “too much on a matter that might come before me if I were confirmed,” Jackson continued, “my own view in developing this type of standard is to make sure that the market and investors have consistency. My concern is that investors are one day going to think they have one standard of protection with retirement assets, and another standard of protection with their brokerage accounts; I think that kind of confusion is not only costly, but doesn’t let investors know what they need to know about the protections they have.”
Peirce, a Republican, reiterated her concerns about Labor’s rule “as it’s currently written,” stating that she’s “glad that calmer minds have prevailed and that people at DOL and at the SEC are taking a look at it.”
She added: “It’s important to work with the states as well and try to get everyone in a room to work together for the objective that everyone has, which is to make sure that investors know the type of service they’re getting and that they have access to service.”
When asked during a question-and-answer session at the Securities Industry and Financial Markets Association’s Capital Markets conference in Washington the same day if the SEC’s fiduciary rule would “supplant” DOL’s standard, Clayton responded that Labor has “their process, we have our process. …we have to respect this,” adding that “at the end of the day we’re all going to operate in this” fiduciary space.
“The SEC has a responsibility to be a leader in this space, DOL has a responsibility and the states have a responsibility. We need to cooperate. At the end of the day, hopefully we’ll end up in a place where the investor is satisfied.”
Noting that the SEC chairman sets the agency’s agenda, Senate Banking Committee Chairman Mike Crapo, R-Idaho, queried Peirce and Jackson on what areas they believed the commission should zero in on in the next year.
“In addition to the rulemaking agenda that’s going to be taking up a lot of time,” Peirce responded, the oversight of firms by the SEC’s Office of Compliance Inspections and Examinations should be high on the agency’s agenda. “I want to see how that’s working,” including the oversight of self-regulatory organizations like the Financial Industry Regulatory Authority, she said.
Another priority should be “to take a look at market structure again, not only equity market structure but fixed income market structure,” she said. “We need to have a long-term view on how we address some of the problems cropping up in those areas.”
Recent events “suggest that cybersecurity will be an important area for us to keep an eye on,” Peirce added.
Jackson agreed that the recent cybersecurity breaches “at the SEC and public companies show that have some work to do,” adding that “making sure that our securities rules and our securities regulators have the tools and technologies in place to keep up with the changing marketplace” is a top priority.
Completion of the outstanding Dodd-Frank Act mandated rules, should also be high on the agency’s list, Jackson said. “I’m concerned that seven years after the passage of that law, several important investor protections, including protections around executive compensation, and the clawback of erroneously awarded pay, still aren’t finished,” he told lawmakers. “Right now, the commission has several proposals before it that are worth attention.”
Another area of focus should be enforcement, Jackson said, “and the law of insider trading. I worry that some of the recent events have caused investors to wonder whether or not the SEC is really on top of the job.”
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