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Securities Regulation: A 2018 Preview

Securities Regulation: A 2018 Preview

As we approach the one-year anniversary of the Trump administration, it’s time to shift from looking back on the year that was to the one that lies ahead. In the area of securities regulation, no crystal ball can be perfect—particularly at the SEC, which still does not have a full complement of commissioners. Newly confirmed SEC members Hester Peirce (R) and Robert Jackson (D) should be sworn in promptly, but Kara Stein (D) (whose term expired in June 2017) and Michael Piwowar (R) (whose term is up in June 2018) could be departing relatively soon.

Nonetheless, certain issues look poised to receive imminent attention from the SEC and other securities regulators. Look for them to tackle the following issues in 2018:

A New Standard of Care for Broker-Dealers: Back in 2011, SEC staff proposed that broker-dealers and investment advisers should be held to a uniform standard of care. That is still not the case; broker-dealers can recommend any course of action that is “suitable” for their clients, while investment advisors are held to the more stringent fiduciary duty. This may be the year that the disparity gets resolved. The SEC solicited comment on the issue recently, signaling that it could move to a disclosure-based approach to handling conflicts of interest.

Department of Labor Fiduciary Rule: No resolution of the above issue will be complete without addressing the Department of Labor’s separate (and controversial) fiduciary standard for brokers who advise retirement savers. (It’s been delayed until July 2019.) Commentators have suggested that the DOL and SEC might find common ground on an “impartial conduct” standard that would require them to act in the “best interests” of retail clients.

An Express Lane for Exchange-Traded Funds (ETFs): Before any exchange-traded fund can be listed and sold on a public market, it’s required to seek and obtain certain exemptions from the Investment Company Act and Exchange Act. The exemption process is seen by some as a waste of SEC resources, and with ETF specialist Dalia Blass now heading the SEC’s Division of Investment Management, expect the process to get streamlined.

Focus on Cryptocurrency: Crypto-fever shows no signs of letting up among investors, especially those located on Main Street. Which means there’s an equally small change that the SEC and Commodities Future Trading Commission will lose any enthusiasm for the subject, either. Expect the SEC and its newly constituted Cyber Unit to continue targeting cryptocurrency frauds. One particularly interesting issue: whether the SEC will reconsider its decision to deny the Winkelvoss twins’ request to establish a Bitcoin ETF.

Enhanced Protection for Seniors: The Senior Safe Act is a piece of legislation with bipartisan support that aligns perfectly with the priorities of the SEC under Chairman Jay Clayton. Expect the Act, which is aimed at preventing exploitation of seniors and other at-risk investors, to gain momentum in 2018. FINRA also issued a new rule on the exploitation of seniors, which takes effect in February.

Streamlining at FINRA: Some complain that FINRA’s rules have become too burdensome, and in response, the FINRA360 project was initiated last year. The self-regulatory body’s self-examination could continue delivering results in 2018. Among other things, we could see some modernization of Rule 5110, dealing with compensation of underwriters in connection with the public offering of securities.

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