Displaying items by tag: SEC

According to the SEC’s draft strategic plan for the next four years, the agency plans on shifting its enforcement focus regarding Reg BI to “making a recommendation.” The SEC’s Strategic Plan for 2022-2026 states that the agency intends to bring cases that matter to “all parts of the SEC’s mission.” This includes failure to act in a retail customer’s best interests when making a recommendation, among other items. Kurt Gottschall, a partner in Haynes Boone, and a former director of the SEC’s Denver Regional Office told ThinkAdvisor that the language “indicates the SEC is ready to move beyond basic compliance and disclosure obligations to scrutinize the placement of retail investors’ funds in advisory versus brokerage accounts, whether complex or risky products were offered to those investors, and registered representatives’ consideration of costs.”

Finsum:Based on the language in the SEC’s four-year strategic plan, advisors and Broker-dealers will need to pay more attention to compensation arrangements and product placements.

Fund giant BlackRock is warning regulators that the SEC's new proposed rules to fight greenwashing by fund managers could create more confusion and lead investors to think their holdings are more socially conscious than they are. Specifically, the firm is concerned over a key detail in the proposal that would require managers to say how ESG issues fit into strategies that also consider other factors. It sent a letter to the SEC arguing that the detail could mislead investors about how much environmental, social, and governance issues factors into stock and bond decisions. The SEC had proposed new regulations for ESG funds in May, which are expected to be finalized in the coming months. BlackRock’s argument has been echoed by industry trade groups such as the Investment Company Institute and the Managed Funds Association. However, these arguments are unlikely to stop the SEC’s crackdown on ESG labels.

Finsum:Blackrock sent a letter to the SEC warning that the new proposed rules on ESG labels will only muddy the waters.

Western International Securities Inc., which is the first broker-dealer to be sued by the SEC for alleged violations of its Regulation Best-Interest fiduciary rule, is expected to spend at least $1 million on its defense. The broker-dealer is accused of failing to meet its fiduciary obligations by selling $13.3 million in high-risk, unrated junk bonds that were not in the best interest of retirees and other risk-averse retail customers. Western said it plans to “actively defend” itself against the SEC’s allegations. Brian Rubin, a partner at Eversheds Sutherland LLP, estimated that Western’s legal fees will cost anywhere from several hundred thousand dollars to well over $1 million. He believes that it’s likely that the SEC demanded too much to settle due to it being its first Reg BI enforcement case. Since the conduct took place after the effective date of Reg BI in June 2020, the SEC brought the charges under Reg BI as opposed to its predecessor suitability standard. 

Finsum: Western International Securities is expected to spend at least $1 million on attorney fees as it fights the first Reg BI lawsuit.

The SEC has proposed rule and form amendments that, would require additional disclosures regarding environmental, social, and governance (ESG) investment practices by RIAs, registered investment companies, and business development companies. The SEC also proposed rules to extend the 80% investment policy requirement in Rule 35d-1 under the Investment Company Act to any registered fund with a name that suggests it focuses on ESG factors. These proposed rules are aimed at helping investors navigate the endless array of ESG investing options. There is currently no tailored rule for ESG investing and the proposed rules would require consistent ESG-related disclosures about ESG products and services. Disclosures will include how a firm evaluates ESG factors and or how it achieves its stated ESG objectives. Advisors and funds will now need to take any necessary steps to prepare for these ESG-related disclosure requirements.

Finsum: The SEC proposed regulations on how advisors and funds label their ESG strategies should provide investors with consistent and reliable information on ESG products and services.

The SEC is planning to beef up its Reg BI enforcement for the rest of the year. The SEC put out a recent bulletin focused on Reg BI compliance and the role that brokers and advisors play in the process. The tone was about how brokers and advisors need to take more responsibility into their own hands regarding compliance. Additionally, more focus and guidance on rollover recommendations is in the pipe, said the SEC. More bulletins on the topic are expected soon.

FINSUM: Rollovers are obviously a major topic for advisors, so this will be closely watched and scrutinized by the wealth management community.