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SEC’s Clayton: Comment Period on Advice Standards May Be Extended

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Securities and Exchange Commission Chairman Jay Clayton, who was peppered with questions about the agency’s proposed Regulation Best Interest for brokers during a House panel oversight hearing Thursday, told lawmakers that a lengthier comment period may be needed for the commission’s advice standards proposal.

Clayton’s testimony before the House Financial Services Committee came the same day that the U.S. Court of Appeals for the 5th Circuit issued its order vacating the Labor Department’s fiduciary rule.

Rep. Ann Wagner, R-Mo., a vocal critic of Labor’s rule, said during a Thursday hearing held by the House Financial Services Committee on SEC oversight that she was happy to see that the SEC “was finally taking the lead” on an advice rule that Dodd-Frank asked the agency to do “some eight years ago.”

She asked Clayton if the agency’s Regulation Best Interest for brokers, part of the securities regulator’s advice standards package, achieves the agency’s stated goal of “clarity, consistency and coordination.”

Clayton responded: “I do. … This was a truly collaborative effort.”

Wagner interrupted: “With the Department of Labor too?”

Clayton continued: “With the Department of Labor. I’m in contact with [Labor] Secretary [Alexander] Acosta, our [SEC, DOL] staffs are in contact with each other. In fact, our inspection staff recently connected with the Department of Labor to show how we would inspect for compliance with this [Reg BI] rule.”

Wagner then asked Clayton if the agency would stick with the Aug. 7 comment period deadline or extend it.

“I think I’ll see in August,” Clayton responded, adding that he thought the “lengthy” 90-day comment period would suffice and that the agency “should not take forever.”

Rep. David Scott, D-Ga., queried Clayton on whether he’d “commit” to being the person to see the advice package rule “through to the end.”

Clayton responded: “No one person can do this.”

Scott probed further: “Will you be the captain of the ship?”

“Yes,” Clayton said.

Remedies to Declining IPOs

Rep. Jeb Hensarling, R-Texas, chairman of the committee, probed Clayton on the 20-year decline in initial public offerings, asking “how big of a problem” is it that “we have roughly half the companies going public [as] we did 20 years ago.”

Clayton responded that from a capital formation perspective, “are we impeding capital formation by not having as attractive a market for companies? I think the answer to that is yes. Are there alternatives in the private markets? Yes. But our public capital markets have been an incredible engine for capital formation in America. … we want to keep that.”

Clayton added that it “troubles” him that the suite of opportunities available to ordinary investors is shrinking because our public capital markets are shrinking.

“I do believe the qualities of opportunities you see in the public capital markets space is not as good as quality opportunities that are available to people with a great deal of capital in the private markets,” Clayton said.

Hensarling also queried Clayton on the importance of “providing greater clarity” for angel investors and updating the definition of accredited investor.

Clayton responded: “We are looking at the accredited investor definition. I believe it needs to be modernized.”

The Republican lawmaker from Texas, who’s not seeking re-election, said recently that the Dodd-Frank rollback bill — the Economic Growth, Regulatory Relief and Consumer Protection Act, S.2155, which President Donald Trump signed into law on May 24 — doesn’t go far enough in its capital formation attempts, so he’ll be pushing for a “JOBS 3.0” (Jumpstart Our Business Startups Act) follow-up package to hit the House floor in the summer.

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