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House budget frees Reg BI

The US House's $1.4trn budget gives free rein to SEC chairman Jay Clayton to pursue Reg BI, but it forbids corporate spending disclosure rules.

The US House has passed a $1.4 trillion budget that will give Securities and Exchange Commission chairman Jay Clayton a free hand to implement Reg BI, but that undercut Commission Democrat Robert J Jackson Jr.’s efforts to require publicly-held companies to divulge their campaign spending.

Reg BI limits had been proposed by Financial Services Committee chairwoman Maxine Waters, who inserted language into her committee’s appropriations bill in late June just after the Commission adopted Reg BI.

Waters had worried that Reg BI “could lower the standard that investment advisors currently abide by and mislead investors into thinking that brokers who comply with this new rule are putting their clients’ interests first.”

‘The Commission is free’

It’s not clear why Waters’ amendment was stripped out of the final budget that passed the House on December 17. But the last time Congress had trouble with a budget, it resulted in a record 35-day government shutdown.

In any case, it’s one less hurdle for Clayton to clear as the Reg BI deadline approaches, says Kurt Wolfe, a veteran litigator with Troutman, Sanders based in Washington, DC.

“The Commission is, therefore, free to spend money around the new broker-dealer standard of conduct,” he said.

Broker-dealers and investment advisors have until June to get their houses in order to comply with Reg BI. At least eight states have sued the Commission, arguing the rules don’t go far enough to protect investors, but Clayton hasn’t blinked on the challenges. “I think people should be ready,” he said back in October.

Campaign disclosures

Separately, the budget also forbids the SEC from enforcing any campaign finance disclosure rules. As late as November 18, Jackson was pushing House Democrats to get serious about what he calls “transparency.”

“The legislation you asked me to review would give shareholders oversight of corporate political spending; it is crucial that ordinary investors understand how the institutions who manage their money would use that power,” he said in a letter to representative Carolyn Maloney, who chairs the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets.

Investment advisors aren’t bystanders in the ongoing argument: Clayton, and the Republican party more broadly, have worked hard to give the C-suite more freedom in its relations with investors. Last month, when a divided Commission approved a rule-making notice that would rein in proxy advisers, many IA advocates said they were caught in the crossfire.