SIFMA sees SEC Fiduciary Rule Within Next 18

January 2, 2018 by Kevin S. Kim, Esq.

The Department of Labor (DOL) and Securities and Exchange Commission (SEC) announced earlier this year that they are collaborating in creating a standardized investment advice rule that would replace Labor’s fiduciary rule. Now, industry experts are betting the SEC can accomplish the approval of a new fiduciary rule before the DOL's delay expires.

The Securities Industry and Financial Markets Association (SIFMA), a financial industry trade group, said in an interview in December that they believe the SEC will deliver a new fiduciary standard sometime over the next 18 months.

While the DOL’s version is shelved, for now, Ken Bentsen, CEO of SIFMA, told a press conference that his group is optimistic that Labor and the SEC can work together in developing an industry-standard fiduciary rule.

“I think they can get it down if they want to,” Bentsen said. “I think they’re committed to doing this. That is different than in the prior administration where the commission felt they had to stand aside.

Most industry analysts have said they prefer one standardized rule across all financial sectors, and the SEC is looking to deliver on that concept.

“[T]he conversation between the commission and the Department of Labor has been substantive, that they recognize that there has to be much more interaction, interoperability among any standards and that multiple standards unnecessarily is not a good outcome,” Bentsen added.

Another regulatory agency has also pledged their support in developing a universal rule. Robert Colby, FINRA’s chief legal officer, addressed a panel at the National Society of Compliance Professionals on October 16, saying that the agency is ready to help in crafting a rule that would standardize compliance across all financial markets.

According to Colby, FINRA believes that the SEC is the right agency to create a market standard saying “You don’t get a lot of second opportunities in Washington, but the SEC has a second chance to come up with its own rule and work with the DOL to get to a coordinated standard,”

The timeframe with which the SEC has to work within may get extended, as the agency awaits an appellate court decision on whether Labor overstepped its authority in creating a fiduciary standard. SIFMA is one of several plaintiffs involved in the original lawsuit that failed in U.S. District Court in Texas, which names the SEC as the proper oversight agency to create a fiduciary standard.

“We’re eager to hear what appellate court has to say. We believe strongly in our case — the government overreached in a number of areas,” said Bentsen.

Bentsen said he hoped the appellate decision would come soon so that the SEC is clear on what direction they should take when crafting the replacement rule. “Whether we prevail in our case — which we hope we do — or not, at the end of the day the course of action is the same, where SEC is to take the lead and develop a best interest standard.

The way it stands now, DOL was the only federal agency to release a fiduciary rule, with a number of state rules in place that run contradictory in some facets. However, many inside the government believe there is a way to overcome conflicting federal and state rules.

Susan Axelrod, executive vice president of Regulatory Operations at FINRA, said that the DOL’s rule and other fiduciary standards are not unlike other areas where you may see “disparate regulatory requirements.” “It’s critically important for the regulators to continue to coordinate and not set different standards because it becomes challenging for the industry to comply.”

The 18 months that SIFMA envisions passing before a new rule is approved, corresponds to the amount of time that certain parts of the DOL rule is delayed. The Department of Labor, under pressure from lawmakers and the Trump administration, delayed compliance deadlines for some elements of the fiduciary rule until July 1, 2019.

The fiduciary rule’s “impartial conduct standards” took effect June 9 and are still in force. The standards require financial services firms to provide accurate and honest advice in their client’s best interest, avoid misleading statements, and charge reasonable compensation for their help.

DOL officials have already confirmed that they could further delay the rule if needed for the SEC to develop a new standardized rule. Until then, it is essential for financial professionals to adhere to current regulatory standards when conducting business.