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SEC's Mary Jo White's top priority: uniform fiduciary standard

Feb 21, 2014 @ 11:19 am

By Mark Schoeff Jr.

SEC fiduciary rule
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(Bloomberg News)

Securities and Exchange Commission Chairman Mary Jo White said Friday that she is pushing the commission to make a decision on whether to propose a regulation that would raise investment advice standards for brokers.

"We will intensify our consideration of the question of the role and duties of investment advisers and broker-dealers, with the goal of enhancing investor protection," Ms. White said at the SEC Speaks conference in Washington sponsored by the Practising Law Institute.

In a meeting with reporters after her remarks, Ms. White said that she wants the five SEC commissioners to come to a conclusion on whether to implement a uniform fiduciary standard for investment advice and to decide whether to harmonize regulations that govern investment advisers and brokers.

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The Dodd-Frank financial reform law gave the SEC the authority to promulgate a regulation that would require that brokers who provide retail investment advice must always act in the best interests of a client — the standard that investment advisers already meet. Brokers are held to a suitability standard when they sell investment products.

The SEC is conducting a cost-benefit analysis of a potential uniform-fiduciary-duty rule but has not indicated whether it will advance a proposal.

"The threshold issue is whether to proceed and what to proceed with, if so," Ms. White told reporters after her speech. "It's a primary, immediate focus."

Ms. White declined to reveal her own position on a uniform fiduciary standard.

"I'm not going to comment on that here," Ms. White said. "I have said, and I firmly believe, that it's a very high priority to make that decision, and it's something I have given a high priority to within the agency."

Three of the five SEC commissioners would have to support a rule proposal for it to move forward for public comment.

SEC Commissioner Daniel Gallagher said that the SEC members have not yet been polled on fiduciary duty by Ms. White.

"I don't know what it is; that's the problem," Mr. Gallagher told reporters on the sidelines of the conference, referring to the fact that a proposal has not been presented. "We don't know if it's a rollout of a pure (1940) Advisers Act fiduciary duty to brokers. Is it harmonization? We have nothing before us on which even to indicate preference."

SEC Commissioner Kara Stein said that she has not made up her mind on a fiduciary duty rule.

"I care very much about it," Ms. Stein told reporters after addressing the conference. "I'm actively thinking about it. It's a really complicated issue. There might be a variety of ways we can get there, and we need to be doing everything we can to make that standard higher."

SEC Commissioner Luis Aguilar supports a fiduciary-duty rule, but declined to comment on whether at least two of is colleagues share his views.

"There's very little doubt that people doing the same job should be held to the same standard," Mr. Aguilar said on the sidelines of the conference, referring to investment advisers and brokers.

In her speech, Ms. White said that the SEC also will increase its oversight of broker-dealers "with initiatives that will strengthen and enhance their capital and liquidity, as well as providing more robust protections and safeguards for customer assets."

This year, the SEC also will step up its monitoring of asset management companies for potential risks they pose to the financial markets.

"I asked the [Division of Investment Management] staff for an action plan to enhance our asset manager risk management oversight program," Ms. White said in her speech. "Among the initiatives under near-term consideration are expanded stress testing, more-robust data reporting, and increased oversight of the largest asset management firms. To be an effective 21st-century regulator, the SEC is using 21st-century tools to address the range of 21st-century risks.”

The Financial Stability Oversight Council, comprised of federal financial regulators, is considering whether to designate large asset-management firms, such as Fidelity and BlackRock, as systemically important. That designation likely would bring higher capital requirements and other new regulations.

Ms. White said that the SEC's focus on risk related to asset mangers is not related to the FSOC's deliberations. The SEC is the primary regulator of the entities.

"It's part of our everyday duties," Ms. White said.

Mr. Gallagher called the initiative "brilliant," saying it will help the SEC stay on top of developments in the sector before they grow into crises.

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