Nine US regulatory predictions for 2017

Todd Cipperman, chief compliance officer for several private equity, mutual and hedge funds, shares his thoughts on next year’s landscape with pfm.

Todd Cipperman is worth listening to when he talks about the future. Last year, he correctly called that the Securities and Exchange Commission would bring a gatekeeper case against a law firm, and that insurers would start offering chief compliance officer insurance. Two years ago, he foretold the regulator’s landmark enforcement action against a private equity firm, and the resignation of two high-profile directors at the commission, Norm Champ and Drew Bowden.

Here are his predictions for 2017:

The new administration will delay the introduction of the Department of Labor Fiduciary Rule, which prevents advisors putting their own interests in earning high commissions and fees over clients' interests in obtaining the best investments at the lowest prices. Cipperman thinks the rule will ultimately take effect with some modification, but it may be a slow process. Most people agree with the principle of protecting retail individual retirement accounts, but many industry participants are struggling with adequate and swift implementation.

The SEC will propose third-party retail investment advisor compliance exams. Paul Atkins, who leads the Trump transition team on financial regulatory issues, is working with Dan Gallagher, who first suggested this concept to ensure more reviews of registered investment advisors when he was an SEC commissioner.

The Office of the Whistleblower will survive, and there will be more claims and more retaliation cases. Cipperman believes this is one part of the Dodd-Frank Act that will survive because everybody gets behind exposing corporate wrongdoing.

The SEC will raise the threshold for private fund registration above $150 million. Both Democrats and Republicans can agree on this change to Dodd-Frank, which has been supported by the law’s co-sponsor Barney Frank.

The Financial Industry Regulatory Authority will become the primary regulator for retail advisers and brokers. As the SEC backs away from retail enforcement and examination efforts, look for FINRA to step into the void.

State regulators will bring two or three precedent-setting enforcement actions. Consistent with the FINRA theme, look for them to flex their muscles if the SEC shrinks away, in the same vein as Eliot Spitzer when he was New York Attorney General.

SEC penalty caps will increase. This is a component of the Financial Choice Act, aimed at Dodd-Frank reform, with which both parties agree.

The SEC will focus on prosecuting individuals, not firms. The transition team’s Atkins has opposed large corporate penalties that ultimately hurt shareholders, but the SEC will continue its policy of prosecuting individuals.

Outsourcing of non-core functions will accelerate. As scale becomes increasingly important, firms will find new ways to focus on their core competencies and outsource the rest.