SEC Chairman Jay Clayton recently provided an overview of the guiding principles that he feels should serve as the backdrop for everything the agency does. That list of principles included a focus on ensuring small investors are protected while at the same time seeking to keep the cost of compliance reasonable for regulated firms.
On July 20, the SEC released its 2017 regulatory agenda. While the agency’s published agenda is not necessarily indicative of the rules it will ultimately adopt, it provides some further insights into the direction the Commission may take under the new administration.
Compared to the Fall 2016 agenda which included 62 proposed and final rulemakings, the new Spring 2017 includes just 33. If the agency sticks to this agenda, federally-registered investment advisers may find some relief from the absence of previously-proposed rules regarding third-party audits, larger adviser stress tests, and certain disclosure requirements.
Absent from the list is the proposed third-party audit rule, which would have potentially increased the number of investment advisers examined each year. The proposal for independent compliance reviews was introduced and championed by former SEC Chair Mary Jo White, and was intended to help bolster the efforts of the Office of Compliance Inspections and Examinations (OCIE.)
IA CCOs who may be comforted by the fact that the proposed rule is no longer on the list should know that their chances of being the subject of a regulatory exam may be going up anyway. Even with the third-party audit rule seemingly off the regulatory table at this point, Chairman Clayton has publicly indicated his intention to increase the number of advisers examined by five percent in the agency’s fiscal year 2018.
Stress Tests for Large Advisers
Another item that no longer appears on the regulatory agenda is a proposed rule that would have required large investment advisers and investment companies to conduct semi-annual stress tests, like those required of banks and other financial institutions under Dodd-Frank.
This controversial proposal was opposed by some who were not convinced that such testing was appropriate for non-bank entities because of the fundamental differences between banking products and investment products.
Also absent from the newly-released regulatory agenda is a proposed rule that would have required more disclosure and clarity around target-date funds, designed to help unsophisticated investors assess and evaluate their options more easily.
Omission from the List Does Not Mean Omission from the SEC’s Radar
The regulatory agenda provides some insight into the direction the SEC will take. However, it should not be taken at face value as an inclusive list of priorities. Just as the inclusion of a proposed rule on the list does not necessarily mean it will be enacted, the exclusion of a proposed rule does not indicate the SEC’s disinterest in a subject.
Notably absent from the list is the Fiduciary Rule, however Chairman Clayton has publicly expressed the SEC’s commitment to moving forward with coordinating the agency’s rule with that of the Department of Labor.
Putting the Regulatory Agenda in Context
Financial services firms evaluating their compliance programs should not take the shortened list of regulatory priorities as a license to be lax in their compliance and oversight activities. As the SEC fine-tunes and seeks to adopt new and modified rules, regulated firms must be diligent about staying in front of those rules.
Leveraging resources and implementing systems that will enable compliance personnel to do their jobs more effectively will help ensure your firm is prepared for whatever direction the regulatory winds ultimately blow.