Sen. Sherrod Brown, D-Ohio, took Securities and Exchange Commission Chairman Jay Clayton to task Tuesday, saying he advanced “one bad rule after another” during his tenure at the agency, including Regulation Best Interest.
During a Senate Banking Committee hearing on SEC oversight, Brown, the ranking member on the committee, told Clayton that Reg BI “doesn’t put mom-and-pop customers first.”
Brown pointed to comments Clayton made during a recent SEC roundtable focusing on the SEC’s initial review of Reg BI and the Customer Relationship Summary, or Form CRS, that firms are “meeting their obligations” regarding the rules.
“Even though you said firms are making ‘good-faith efforts,’ your staff reported shortcomings in compliance and failures to fully disclose disciplinary history to clients,” Brown stated. “In fact, it doesn’t seem like you have any way to tell if this rule will help at all. Not a very auspicious beginning.”
In his prepared testimony, Clayton stated that Reg BI and Form CRS “raise the bar, in terms of both legal requirements and mandated disclosures, for firms serving retail investors, while preserving access (in terms of both choice and cost) to a variety of investment services and products.”
Clayton said he believed “preserving choice, with added protections and transparency, has proven to be particularly important as market conditions, investment options and investor preferences have changed, including as a result of our historically low interest rate environment where recurring fees can erode or even eliminate the yields on fixed income instruments.”
Brown also noted that he shared recent concerns raised by the North American Securities Administrators Association regarding the agency’s plan to order a new federal broker-dealer exemption for private placement finders.
The SEC adopted on Oct. 7 the new limited, conditional exemption from broker registration requirements for “finders” who assist issuers with raising capital in private markets from accredited investors — something SEC Commissioner Hester Peirce has wanted since 2018.
The plan creates two classes of finders, Tier I and Tier II, that would be subject to conditions tailored to the scope of their respective activities.
The plan establishes “clear lanes for both registered broker activity and limited activity by finders that would be exempt from registration,” the SEC said.
“I’m not the only one who’s worried about your agenda,” Brown said during the hearing. He noted 30 NASAA members’ concerns about what they called the “broad rule proposal with few safeguards that in their words, ‘would facilitate unlicensed intermediaries in the private market.’”
Said Brown: “That’s a polite way of saying they are afraid of rampant fraud. Not only are they worried that you’re putting their constituents at risk, they are upset that they didn’t even get a heads-up.”
Lisa Hopkins, NASAA president and West Virginia’s senior deputy securities commissioner, told Clayton in the letter that “the limited controls proposed by the SEC would be inadequate because they cannot ensure that finders would solicit sophisticated investors only, they are too vague to enforce, they cannot be monitored for compliance, and they are susceptible to abusive practices that could harm small business capital formation.”
Clayton announced Monday that he’d be stepping down from the agency by year-end.
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