Everything’s coming up Clayton: SEC chair Jay Clayton is hitting his stride with his agenda. The former white-shoe lawyer (who helped bring Alibaba to the American masses) had a good week, with the passing of a $1.4 billion budget that gives him free rein to enforce Regulation BI and the approval of a proposed expanded definition of ‘accredited investors’. Both moves are controversial but, taken together, they may well provide a further boost to the private funds industry. The two linked articles above are courtesy of sister pub Regulatory Compliance Watch.
So sophisticated: Both Regulation BI and the proposed expanded definition of ‘accredited investor’ divided the SEC. Democrat commissioners were wary of loosening protections for investors, and especially retail investors, while Republicans were focused on boosting business and investment. The SEC is considering whether to allow retail investors advised by registered investment advisers to be considered accredited investors. Financial professionals who have series 7, 65 and 82 securities licences would also be included as ‘accredited investors’, alongside ‘knowledgeable employees’ at private funds.
Best Interest: The U.S. House of Representatives passed a budget this week that stripped out a proposed amendment that would have completely restricted the SEC’s ability to enforce Regulation Best Interest (see this story from RCW). That means the SEC has free rein to enforce it. Some view the rule as a means to avoid imposing fiduciary duties on investment advisers and broker-dealers. (Oh, and by the way, the budget forbids the SEC from enforcing any campaign finance disclosure rules.) At least eight states are suing the SEC, angry that their own rules around the fiduciary duties of BDs and IAs may be subverted.
Anecdotally, we understand many firms haven’t even begun to ensure their houses are Reg BI-compliant. Examination staff are set to start asking firms about compliance efforts in January, and some lawyers think it is getting late to only be starting now.
Email prepared by Graham Bippart
This is our final Daily Email of the year. We will resume on January 6. Have a great holiday season!