Displaying items by tag: SEC

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.

Special purpose acquisition vehicles (Spacs) have been one of the go-to alternatives for high-income investors in the last year, but for Goldman Sachs that could be changing. The SEC is proposing reforms to Spacs in order to improve transparency and align with traditional investments. Goldman will pause their Spac offerings in response. GS was one of the largest underwriters for Spacs in 2021 and raised almost $16 billion. This isn’t expected to be an isolated event for GS, other Wall Street firms are expected to follow suit as regulation will make these less attractive ventures.

Finsum: Biden’s SEC has been a not-so-quiet regulator when it comes to alternatives where they are quickly expanding scope to come down on these sub-industries

President Biden announced he is going to nominate Michael Barr, former Assistant Secretary of the Treasury and current dean of the University of Michigan's Public Policy School, for the Feds Vice Chairman of Supervision. Previously nominated Sarah Bloom Raskin pulled her nomination with harsh criticism from Republicans because she argued the Fed should discourage lending to traditional energy companies. Barr will be stepping into a difficult role but has experience in Government. He helped create the Consumer Financial Protection Bureau. Critics have said that Barr had been easy on bank regulations during the Obama admin and others were suspicious as to his role with Lending Club and Ripple Labs.

Finsum: This is a relatively new position but it has critical regulatory power for the financial system.