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Regulation and Compliance > State Regulation

Top 2020 Compliance List? Reg BI, Secure Act, New Ad Rule

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As the new year approaches, advisors are bracing for a passel of new rules and laws coming out of Washington — namely the Securities and Exchange Commission’s Regulation Best Interest, an anticipated modern version of the SEC’s advertising rule as well as potentially new sweeping retirement-related tax policies emanating from the Setting Every Community Up for Retirement Enhancement (Secure) Act.

The Secure Act, which passed the House earlier this year, was volleyed about the Senate floor in November as the deadline to fund the government loomed.

Senate Majority Leader Mitch McConnell, R-Ky., failed twice in mid-November to get senators to pass the Secure Act under a unanimous consent (UC) vote.

Sen. Rob Portman, D-Ohio, said on the Senate floor in early November that “a live UC was tried. It was an attempt to get a vote on the Secure Act,” adding that he supported the five amendments offered by Republicans.

For the past five and a half months, Portman continued, “some of us have been trying to get this legislation done, and there have been concerns on both sides of the aisle. But we’re at a point now where we know, having raised this live UC, that we continue to have this stalemate. And after five and a half months, it’s time for us to move forward on these reforms.”

Industry officials and lobbyists have anticipated that a continuing resolution — as opposed to an omnibus spending bill — would be passed to fund the government until Dec. 20, and that Secure would not be attached to a CR.

There’s “bipartisan, bicameral support for attaching Secure” to a must-pass bill, specifically a spending bill, but Congress “is more likely to go with a continuing resolution” to fund the government through the end of the year, said Judi Carsrud, NAIFA’s assistant vice president for government relations.

The CR “is far less likely to have any attachments, because Congress likes ‘clean’ CRs to avoid the politics of which bills it could or should attach,” Carsrud says.

There’s likely “a little less than 50/50” chance that Secure Act passes this year, Brad Campbell, former head of the Labor Department’s Employee Benefits Security Administration, said on a recent call. Passage is “certainly a possibility, and it’s something there’s a lot of people working to try to get the Senate to make some forward progress on.”

If the Secure Act is going to get passed, “it probably needs to happen this year,” said Campbell, who’s now a partner at Drinker Biddle in Washington, given that “next year becomes more and more about the [presidential] election and that kind of fighting.” But whatever happens, the bill’s “concepts … have gotten bipartisan approval, so they’re going to hang around,” Campbell opined.

The bill’s package of retirement-related tax provisions increases the auto-escalations safe harbor to 15%, changes the required minimum distribution age to 72, gets rid of the age limit for contributions to IRAs, and puts in place a safe harbor for selecting an annuity provider for workplace retirement plans.

A couple of Secure Act provisions “have raised some eyebrows,” according to Campbell, including one that says that employees who work 500 or more hours for a company in three consecutive years are eligible to join its retirement plan. “That’s raised some questions about compliance and other issues.”

If there’s another tax bill next year, and “if there is another opportunity after the presidential election and the next congressional election and the next Congress, we’ll see these ideas [in Secure] stay and some of them will make it through; the question is what’s the vehicle and what’s the timing?” he added.

Will Reg BI Compliance Date Stick?

Meanwhile, attorneys prognosticated in late October whether Regulation Best Interest’s June 30, 2020, compliance date would actually kick in, given the lawsuits lobbed against the agency’s controversial rule this year.

The recent lawsuits filed against the Reg BI by seven states are “more political posturings” than “credible, legal maneuvers” and are unlikely to succeed, Campbell said on Drinker Biddle’s Inside the Beltway webcast.

The recent lawsuits by the state attorneys general show they believe Reg BI “was not the right policy solution,” Campbell said. The lawsuit “fits in” with the actions by some states to pursue their own fiduciary regulations.

The lawsuits are “more indicative of a political split and a policy split between the federal government and the states,” said Campbell, the former head of Labor’s Employee Benefits Security Administration.

Jim Lundy, partner in Drinker Biddle’s Chicago office, added that he believes the SEC “will do everything to be successful” in fighting the lawsuits. “I do think the [legal] challenges [against Reg BI] will be unsuccessful.”

He reminded attendees that the legal challenges are only against Reg BI and not the other parts of the SEC’s advice-standards package, like Form CRS.

The attorneys did not opine on the lawsuit brought against Reg BI by XY Planning Network, led by advisor and blogger Michael Kitces, as they hadn’t reviewed XY’s case.

However, Kitces told IA in mid-November that he believes XY Planning has a strong case. “We’re still in the stage of determining in what jurisdiction the case will be brought (District Court or Appeals Court),” Kitces said.

The judge in the Southern District of New York initially responded “that he thought our case did not belong in his (District) court and that it should go to the Appeals Court. We’re waiting for the court to publish a briefing schedule so we have the opportunity to respond to the judge, and then decide if we’re actually going to object and make a case to have this heard in District court or simply take it to Appeals Court and argue it there,” Kitces said.

The lawsuit filed against Reg BI by eight attorneys general was dismissed on Oct. 11 by the Southern District of New York, as the court wants the matter to be taken up by the U.S. Court of Appeals for the 2nd Circuit.

FINRA Moving Ahead on Reg BI Compliance

Sandra Grannum, a partner in Drinker Biddle’s Litigation Group, said that the Financial Industry Regulatory Authority, which will be the enforcer of Reg BI, “has made a point telling its members: Get ready. Our expectation is that we will be enforcing Reg BI come July 2020.” Indeed, FINRA’s CEO, Robert Cook, said in mid-November that the broker-dealer regulator was gearing up to conduct Reg BI compliance checks on BDs in the form of “preparedness” exams.

At FINRA’s Senior Investor Protection Conference in Washington on Nov. 12, Cook said that “as we get closer to the [Reg BI] deadline, we will be building into the scope of some of the reviews that we’re doing … a conversation about how’s a firm getting ready to comply [with Reg BI].”

He continued: “We just want to make sure we understand what some of the challenges that firms are facing at this stage and where they might be needing more guidance.”

After assessing BDs’ Reg BI compliance status, FINRA will be prepping for Reg BI exams by “working closely” with the Securities and Exchange Commission, Cook said.

“We want to make sure that the exams are embodying the same general approach, and to that extent, talking about making sure examiners are comparably trained,” Cook said. “So there’s a lot of coordination on the exam front with the SEC.”

Cook added that FINRA plans to “move forward in the near future” in filing a rule proposal with the SEC on FINRA’s suitability rule and “how it interacts” with Reg BI.

Washington Bureau Chief Melanie Waddell can be reached at [email protected].


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