White vows to forge ahead on fiduciary duty, third-party exams despite diminished SEC

The chairwoman and another commissioner laid out regulations to tackle, which also included reviewing ETFs

Feb 19, 2016 @ 11:45 am

By Mark Schoeff Jr.

Despite missing two of its five members, Securities and Exchange Commission Chairwoman Mary Jo White said Friday the agency will forge ahead on rules to raise investment-advice standards and enhance oversight of advisers.

“At the moment, as you know, we are a commission of just three members, but — as has occurred in the past — we can carry forward all of the business of the commission,” Ms. White said at the Practising Law Institute conference in Washington. “And, while we look forward to welcoming new colleagues, Commissioners Stein, [Michael] Piwowar and I are fully engaged in advancing the commission's work.”

The Obama administration has nominated Republican Hester Peirce and Democrat Lisa Fairfax to replace two members who have departed the SEC, Republican Daniel Gallagher and Democrat Luis Aguilar, but the Senate has not yet begun the confirmation process.

Although Ms. White didn't offer a timetable for adviser regulation items, she said she will try to advance them.

“I will continue to work to develop support from my fellow commissioners for a uniform fiduciary duty for investment advisers and broker-dealers, and to bring forward a workable program for third-party reviews to enhance the compliance of registered investment advisers,” Ms. White said.

Third-party exams are being considered as a means to strengthen SEC oversight of advisers. The agency currently examines annually about 10% of the approximately 11,500 investment advisers registered with the SEC.

An agency at less than full strength is not impeding demands from another of its remaining members, Kara Stein, either. On Friday she urged the SEC to launch a comprehensive review of exchange-traded funds, arguing they may be becoming too complex for ordinary investors.

In separate remarks at the Practising Law Institute event, Ms. Stein warned that the growing complexity of ETFs makes understanding them “difficult for the average investor.”

She said the agency needs to get a better handle on ETFs, which are similar to mutual funds but trade throughout the day, because of the increasing number that use hedging and smart-beta strategies as opposed to simply tracking equity indexes.

“We need to take a holistic look at these products, their transparency and how they interact in our capital markets,” Ms. Stein said. “This should include not only looking at ETFs, but other exchange-traded products that hold commodities, currencies or derivatives.”

The increasing popularity of ETFs, which had $2 trillion in assets under management in the United States in 2014, and their associated risks make them ripe for SEC review.

“We need to think about a roadmap for holistic regulation of ETFs and other exchange-traded products given their explosive growth and evolution,” Ms. Stein said.

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