What You Need to Know
- New regulatory agency leaders mean new rules for advisors and broker-dealers to watch for.
- In Reg BI exams, the SEC will evaluate BD processes for compliance and alterations made to product offerings.
- RIAs will have 18 months to come into compliance with new ad rule.
A new administration as well as new leaders at the helm of regulatory agencies and congressional committees sets up a slew of activity for advisors and broker-dealers to watch in the new year.
Republican SEC Commissioner Hester Peirce pointed out in early March at the Investment Adviser Association’s virtual compliance conference, that President Joe Biden’s pick to be the new SEC chair, Gary Gensler, “will come in and will be thinking about the agenda he wants to set and where priorities fall.”
During Gensler’s nomination hearing before the Senate Banking Committee on March 2, Senators’ questions seemed to indicate his first priority should be addressing the Reddit GameStop short squeeze. The agency’s controversial Regulation Best Interest and its accompanying advice standards package, including Form CRS, were not discussed.
Gensler — a former chair of the Commodity Futures Trading Commission who’s a professor of blockchain, digital currency, financial technology and public policy at the Massachusetts Institute of Technology — laid out to the senators the steps he’d mull to address the recent market volatility related to the GameStop Reddit squeeze.
He also addressed his approach to regulating cryptocurrencies. Gensler told the senators, these products “have brought new thinking to payments and financial inclusion, but they’ve also raised new issues of investor protection that we still need to attend to.”
If confirmed, Gensler said he’d “work with fellow commissioners to both promote the new innovation but also at the core, ensure for investor protection.”
In Peirce’s mind, the SEC should “wait” before making “major changes” to Reg BI and the advice standards package, she opined during the IAA event. The SEC “should always be open to rethinking rules; that’s never a territory we shouldn’t be willing to enter,” Peirce said.
At the same time, Reg BI and the standards of conduct package is “a very new rule set; there was a lot of work done during the implementation. … It makes sense to me to see how this all plays out and then if we conclude there’s things that needs to be changed or clarified or eliminated … then we can come back to do that.”
A new SEC chair, Peirce continued, also will “want to see how [the package] plays out.” Reg BI “gives [the SEC] new abilities to bring cases that would have been harder to bring in the past. So I’m optimistic.”
As to Form CRS, Peirce conceded that “it is so dense, and some of them are not very inviting to read.” Often, she said, a “non-paper based digital message” is more effective. “It’s hard to get all this information into such a short form … I’m open to reconsideration on Form CRS.”
Administration and The Hill
Sen. Sherrod Brown, D-Ohio, taking the helm as the new chairman of the Senate Banking Committee means “much more legislative activity” coming out of that committee than there was under former Republican Chairman Mike Crapo, R-Idaho, Neil Simon, vice president of government affairs for IAA, said during the group’s virtual compliance event. House Financial Services Committee bills “went to die” under Crapo, Simon said.
Rep. Maxine Waters, D-Calif., maintains her spot as chairwoman of the House Financial Services Committee. Simon said he expects that committee’s newly created Diversity and Inclusion Subcommittee, which was created last year, “may focus on the asset management industry sometime in this Congress.”
With a 50-50 Senate, added Langston Emerson, a partner at Mindset DC — a bipartisan public policy firm — it will be “very difficult” to get significant legislation passed.
As a result, “there will be a large focus [by both chambers] on urging and pressuring the Biden administration to do rulemaking from a unilateral perspective,” Emerson said, as well as “a push and pressure on the [regulatory] agencies to do more.”
SEC Exam Priorities — Before Gensler
The SEC’s Division of Examinations released in early March its exam priorities for 2021 — with a compliance with Reg BI, Form CRS and whether RIAs have fulfilled their fiduciary duties of care and loyalties as the top issues being probed.
Amy Lynch, president of FrontLine Compliance, stated in an alert that “it’s important to note that the [2021 exam] Letter was issued prior to the new Chair’s arrival to the Commission.” Once Gensler “is in place (assuming official confirmation) the list of priorities for exams may very well change.”