Displaying items by tag: SEC

(New York)

One of the big risks to the muni sector that has gone underappreciated by the financial media and investing community is the threat of the soon-to-be revamped SEC making some big changes to the asset class. The reason for concern is that Elad Roisman has just been appointed interim chief of the SEC. Roisman has long had a focus on transparency in fixed income markets, which he and others at the SEC feel is too opaque. This has raised the risk of new regulation in the space. That said, his short term before likely being replaced by Biden will limit his time frame to change any policy.

FINSUM: Roisman is a Republican and was previously chief counsel at NYSE Euronext, which gives him a very significant command of market structure. This would certainly equip him with the know-how to overhaul fixed income markets, but unless the Biden administration wants that to be a focus, it doesn’t seem he will have enough time. Bullet dodged or opportunity missed?

(Washington)

As of last Wednesday, Trump-appointed SEC chief Jay Clayton has departed, with an interim head now in place. That means the Trump era is effectively over at the agency. It is now Biden’s turn to take the reins, and according to industry experts, that likely means two big changes. The first is the type of SEC chief he will choose, and the second is the nature of Reg BI. On the chairperson front, it is rumored that Biden with choose Preet Bharara, a former prosecutor, which would be more in line with Obama era chief Mary Jo White. This would be a departure from Clayton, who is also a lawyer, but worked on behalf of corporate clients. Secondly, the nature of Reg BI would likely change in substantial ways. “Best interest” seems very likely to be defined under Biden; and additionally, enforcement efforts will likely be stepped up considerably versus the status quo.

FINSUM: Our instinct is the SEC is going to be a totally different animal under Biden, as a definition of “best interest” and rigorous enforcement efforts would significantly change the general wealth management regulatory environment. Plus, a prosecutor as head of the SEC sort of says everything you need to know what about what the enforcement regime might look like.

(Washington)

Sneaking in right after Christmas and just before a change of administration, the SEC has announced an important rule change that affects all advisors. In particular, the SEC has updated a rule that has not been touched in decades and was increasingly out of touch with reality. The change has to do with marketing communications, particularly those through internet channels. According to Barron’s, “The new regulation also allows financial advisors to use testimonials, endorsements, and third-party ratings to woo potential clients, as long as they meet certain conditions”. SEC chief Jay Clayton commented that “The marketing rule reflects important updates to the traditional advertising and solicitation regimes, which have not been amended for decades, despite our evolving financial markets and technology. This comprehensive framework for regulating advisers’ marketing communications recognizes the increasing use of electronic media and mobile communications and will serve to improve the quality of information available to investors”.

FINSUM: Advisors have had to tread very lightly in digital communications/advertising for years because of a high degree of uncertainty about what was permissible. This goes a long way towards making that very clear.

(Washington)

The House Financial Services Committee sent a very strong message to president-elect Joe Biden this week: dissolve Reg BI. Chaired by Maxine Waters, the committee said that the Trump administration had "taken several actions that have eroded shareholder rights, established regulatory barriers to shareholder engagement, increased issuer involvement in the proxy voting advice process and stripped away fundamental investor protections, including safeguards around private markets, where investors have few protections”, and that Biden should take care of the issue by getting rid of Reg BI, and separately, CRS altogether.

FINSUM: Industry experts seem to agree that the Biden Administration is unlikely to completely unwind Reg BI, if only because getting a new rule through would require Congressional approval. While that could still happen depending on how the Georgia runoffs go, it seems more likely the new SEC team would just employ very strict enforcement of Reg BI.

(Washington)

Joe Biden and the Democrats’ plan for wealth management regulation is becoming clearer as his inauguration date draws nearer. One big question on the industry’s mind is whether Biden will completely replace Reg BI with an entirely new package. According to former SEC lawyers, that seems highly unlikely. The reason why is that doing so would take an act of Congress, a high bar. Rather, what seems much more likely is that a new SEC chief is appointed an enforcement is tightened very considerably, with the emphasis moving to strict “by the letter” enforcement rather than principles-based enforcement.

FINSUM: This would be a big change. One of the aspects that really set the Trump administration era of enforcement apart was that it would focused on following rules in principle more so that “to the letter”. While this was not unique to wealth management, it was a definite change of pace that now seems likely to reverse.