Biden Would Kill SEC’s Reg BI: Morningstar Analyst

While the Department of Labor is “rapidly” moving to finalize before year-end — and perhaps before the election — its fiduciary prohibited transaction exemption to align with the Securities and Exchange Commission’s Regulation Best Interest, a Biden administration will likely seek to overturn both rules, according to Morningstar analysts.

Jasmine Sethi, associate director of policy research, noted Wednesday at Morningstar’s annual conference, held online, that Labor’s rule “has been criticized from all sides.”

The problem, according to Sethi, is that “the proposal is vague…particularly with rollovers.” The plan “brought back the five part test but reinterpreted it to cover rollovers. It does not include all rollovers, just those that meet the five-part test. The tricky prong is the regular basis prong.”

Aron Szapiro, policy research head at Morningstar, predicted that SEC Chairman Jay Clayton would leave “in early 2021,” and if former Vice President Joe Biden won the White House, the new SEC chair would likely withdraw Reg BI.

If President Donald Trump is re-elected, he will “maintain the status quo in terms of regulation,” Szapiro said. If Biden wins, there will be “support for enhancing standards of conduct above Reg BI,” which could be done through a Democratic chair and a 3-2 vote at the commission.

Or Reg BI changes could be achieved by amending the Dodd-Frank Act “to make clear that standards of conduct should be uniform,” Szapiro said. “This is a real live issue with the election.”

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