SEC Commissioner Allison Herren Lee is “staying riveted” on agency FAQs, as they are “early interpretations” and “potential enforcement attempts.”
The Securities and Exchange Commission’s two Democratic members agreed Friday that the industry will need guidance from the securities regulator on how to comply with Regulation Best Interest before it goes into effect on June 30, 2020.
Both, however, questioned whether FAQs would be enough.
Barbara Roper, director of investor protection for the Consumer Federation of America, probed SEC Commissioners Allison Herren Lee and Robert Jackson during a question-and-answer session at the federation’s financial services conference in Washington on whether the agency will provide “any clarity around” best interest and what it means to mitigate conflicts — two aspects of Reg BI that Roper argued “determine whether the standard actually delivers any protections for investors.”
Lee, who reminded attendees that she was not on the commission when it adopted Reg BI and the advice-standards package on June 5 — as she was sworn in on July 8 — stated she “was disappointed” with Reg BI. “It is not the rule that I would have written,” she said.
That said, Lee responded that she’s “hopeful” the agency will provide clarity. “We have a chair who’s said this best-interest standard is supposed to substantially enhance the obligations of broker-dealers. So I take heart from that.”
Jackson, who voted against the agency’s advice-standards package, gave an unequivocal “no” on whether he thought the agency would “take steps to clarify the things that were not clear” in Reg BI.
“There are going to be enforcement decisions that will have to be made,” Jackson said. “There’s going to have to be guidance that will be given to broker-dealers engaged in certain types of activity.”
Lee cited the first FAQ guidance issued by the divisions of Investment Management and Trading and Markets on Form CRS as the “early round” of agency interpretations on the advice-standards package.
She and her staff are “staying riveted on what they’re [SEC staff is] doing in these early interpretations and these early potential enforcement attempts” via FAQs.
“There are opportunities to make it [Reg BI] strong and we have to seize them early; we are focused on that.”
In separate comments to reporters on the sidelines of the event, Lee said that in the early stages of compliance, firms “will need guidance, through FAQs … then over time, we’ll have to figure out how to enforce that, but we’ll have to start by giving them some clear meaning of what the standard is intended to be.”
When asked whether FAQs will be enough, Lee responded: “I guess that remains to be seen. They need clarity.”
In regards to whether FAQs will suffice, Jackson responded: “How many of them will there be? Will there be enough? How much guidance will be provided? How aggressive will enforcement be? The bottom line is: How good a job Reg BI is going to be in protecting ordinary people is going to be decided by on-the-ground regulatory decisions in the future. And who’s making those decisions is going to be very important.”