Displaying items by tag: fiduciary rule
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.
Legal experts are predicting there could be an expansion coming to the DOL fiduciary. Partners at Faegre Drinker are expecting a proposal in the next quarter or two which would label one-time advisors involved in retirement rollover or IRA assets to be labeled fiduciaries. One time advice-givers particularly those trying to establish a relationship would now be labeled as fiduciary advice. Reporters reached out to the Department of Labor but they did not respond to a request for a comment about the change. However, legal federations are expected to challenge the further expansion of the DOL fiduciary classification.
Finsum: This would be a major change to the DOL Fiduciary rule and could really impact advisors trying to gain clients.
Some major industry lawyers think the DOL is poised to issue the newest fiduciary rule in short order. Bradford P. Campbell, partner at Faegre Drinker Biddle & Reath says that the new rule will be coming this Spring. The new rule is a long-time coming if you consider that they began working on it when Biden took office well over a year ago. According to Campbell, that makes sense, "That's because the issues are hard. To their credit, they're spending a lot of time meeting with people and discussing the issues. I think DOL is just taking time to do the rule as best they can". According to Fred Reish, another partner at the firm, "I've heard from people that they're actually working very hard on it right now ... So it's not like it's been set aside on the top of a desk until somebody gets confirmed".
FINSUM: This would be a big move by the DOL and is likely to catch advisors unaware as with all the volatility this year, this has not been high on the overall wealth management radar.
The Biden Admin hasn’t been shy about wanting to tighten the regulatory belt on Wallstreet and the financial world, and another step is being taken. The SEC is considering changing the disclosure rules when it comes to acquisitions of public companies by hedge funds. Currently, HFs have a 10-day buying period to which the public doesn’t have to be made aware of a purchase. Chairman Gensler is making it clear they are eying tighter rules when it comes to disclosure. The current rules are over 50 years old and were meant to bring more information symmetry between the public and private investors. The SEC is looking to increase transparency and give the public more time to adjust.
FINSUM: This will definitely give the public an advantage, but we’ll see how the SEC votes when push comes to shove.
Brokers better look out, the SEC has started the new year with a bang. The Commission has mostly been quiet about its potential Reg BI changes since the rule went into effect about 18 months ago. However, a big new warning has come out from Quinn Emanuel’s SEC enforcement practice. There are “strong indications” of much more robust enforcement coming. According to Kurt Wolfe of the SEC Enforcement Practice, “SEC Chair Gary Gensler is under pressure from broad constituencies to show results in the space. For example, at a recent hearing of the Financial Services Committee of the House of Representatives, Rep. Carolyn Maloney (D-N.Y.) encouraged Chair Gensler to ‘take further action to strengthen this rulemaking,”. Further, “the SEC has signaled that regulated firms may not be getting Reg BI right, and senior SEC officials have made it clear that they intend to take an expansive, perhaps aggressive, approach to Reg BI.”
FINSUM: Since Biden took office it has really only been a matter of time until enforcement scaled up. It is now clear that it is coming.