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Regulation and Compliance > Federal Regulation > SEC

Treasury Backs DOL Fiduciary Rule Delay

By Melanie Waddell

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Delaying implementation of the Labor Department’s fiduciary rule pending further evaluation by Labor, the Securities and Exchange Commission and the states will improve the regulatory framework for asset managers and insurers as well as the products and services they offer, the Treasury Department said in a report Thursday.

The report, “A Financial System That Creates Economic Opportunities: Asset Management and Insurance,” is the third report issued by Treasury under Executive Order 13772, issued by President Donald Trump on Feb. 3. The order calls on Treasury to conduct an extensive review of existing financial rules, and then identify the laws and regs that are “inconsistent with the Core Principles” for financial regulation.

Indeed, the official 18-month delay of the fiduciary rule by Labor is expected to land at the Office of Management and Budget next week.

The first Treasury report on regulatory reform, released in June, also zeroed in on reducing overlap and duplication in federal regulation as well as reining in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The second report was released on Oct. 6 and included revisiting the “accredited investor” definition and re-examining the Jumpstart Our Business Startups (JOBS) Act.

The fourth report on nonbank financial institutions, financial technology and financial innovation is forthcoming.

To develop the reports, Treasury consulted with the member agencies of the Financial Stability Oversight Council, as well as a wide range of other stakeholders, including trade groups, financial services firms, consumer and other advocacy groups, academics, legal experts, and others with relevant knowledge.

“The regulatory framework for both the asset management and insurance industries can be significantly improved,” said Treasury Secretary Steven Mnuchin, in releasing the report. “We are recommending more efficient and effective regulation to give consumers access to the products they need while providing individuals with opportunities to save for retirement.”

In the 176-page report, Treasury states that it “supports current efforts” at Labor “to re-examine the implications of the revised fiduciary rule and related exemptions adopted by the DOL in April 2016,” adding that a delay “in full implementation of the fiduciary rule is appropriate until the relevant issues are evaluated and addressed to best serve retirement investors.”

Treasury continued that it “supports the SEC’s engagement on this topic, and encourages the DOL and SEC to work with the states to evaluate the impacts of a fiduciary rule across markets.”

As to the life insurance industry, Treasury said that it recognizes the “increasingly important role of the life insurance industry and its products in securing retirement income,” and recommends “strengthening consumer access and choice with respect to annuities as investment options within employer-sponsored retirement plans such as 401(k) plans.”

Treasury plans to also convene “an interagency task force to develop policies to complement reforms at the state level relating to the regulation of long-term care insurance,” the report states.

SEC Should Move Ahead With ‘Plain Vanilla’ ETF Rule

The Treasury also recommends that the SEC move forward with a “plain vanilla” ETF rule “that allows entrants to access the market without the cost and delay of obtaining exemptive relief orders, subject to conditions the SEC determines appropriate and in the public interest.”

The SEC, Treasury states, should either repropose or propose a new rule on ETFs for public comment.

“Adopting a plain vanilla ETF rule would not only reduce cost and delay for new entrants, it would also enable ETF sponsors to avoid the potential for costly updates to existing exemptive relief orders when introducing new products, and help reduce uneven treatment between ETFs,”  Treasury states.

Further, a plain vanilla ETF rule “would enable the SEC staff to focus efforts on more novel and more difficult ETF exemptive relief applications and timely responses to these requests,” the report continues.

Also, “to streamline the ETF process and reduce inefficiency, the SEC should consider establishing a single process for ETF and related approvals rather than allowing SEC divisions to set multiple and sometimes conflicting requirements.”

Norm Champ, former head of the SEC’s Investment Management Division, told ThinkAdvisor in a Friday email message that he’s “hopeful” the plain vanilla ETF rule will move ahead.  

“This would be a great benefit for investors, sponsors and the SEC,” said Champ, who’s now a partner in the Investment Funds Group at Kirkland & Ellis. “Investors would enjoy lower costs, sponsors could move to market more quickly and the SEC would free up resources for more important matters. It’s a win all the way around.”

— Check out Fee-Based Annuities and the Fiduciary Rule: One Size Doesn’t Fit All on ThinkAdvisor.

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