Piwowar departure will complicate action on SEC advice rule

Commissioner set to leave agency July 7, about a month before proposal's comment deadline hits

May 8, 2018 @ 2:14 pm

By Mark Schoeff Jr.

When Securities and Exchange Commission member Michael Piwowar departs July 7, it will make the agency's already heavy lift to promulgate an investment advice reform package even more of a backbreaker.

Mr. Piwowar, a Republican, announced Monday he would step down following the completion in June of his five-year term on the five-member commission.

This will come a few months after the SEC released its nearly 1,000-page advice reform proposal on April 18 after a 4-1 vote, in which even members who supported putting the package out for comment voiced serious concerns about it.

The proposal, which creates a best-interest standard for brokers, is expected to be published in the Federal Register this week. That means the 90-day comment period would end in early August.

Mr. Piwowar's departure could significantly delay a rulemaking that already was projected to last for months — or make it impossible to complete.

The looming reduction in the SEC roster coincides with what appears to be the end of the Labor Department's fiduciary rule, which was struck down in a March 15 split decision by the 5th Circuit Court of Appeals that is expected to become effective soon.

"If the [Trump administration] were to replace Commissioner Piwowar with someone as skeptical of regulation as Commissioner [Hester] Peirce, that could be the nail in the coffin of an enhanced standard for broker-dealers, particularly if the 5th Circuit decision stands and the DOL rule is vacated," said Barbara Roper, director of investor protection at the Consumer Federation of America.

"I'm skeptical that [SEC] Chairman [Jay] Clayton will be able to rely on Republican votes for an enhanced standard," Ms. Roper said.

Even though he pointed out several areas of the SEC package he thought needed to be improved, Mr. Piwowar seemed inclined to forge ahead in April.

"It has changed the calculus, because Clayton loses a reliable ally on rulemaking, especially this one," said Scott Kimpel, a partner at Hunton Andrews Kurth.

A four-person commission, once Mr. Piwowar leaves, could easily deadlock 2-2. But the commission may lose another member soon.

Democratic commissioner Kara Stein's term ended last year. She can continue to serve until December.

If the Trump administration decides to replace Ms. Stein and Mr. Piwowar at the same time, it would, in the meantime, leave three commissioners and even more potential for turmoil.

Under SEC quorum rules, the votes of a three-member commission can be blocked if one of them refuses to participate.

"That gives each individual commissioner a pocket veto on anything they want," said Mr. Kimpel, who was counsel to former SEC Republican member Troy Paredes.

He said the gravity of the investment advice package doesn't lend itself to rulemaking with a diminished commission.

"On something this momentous, I don't think you want to vote on it on a 2-1 basis," Mr. Kimpel said.

That means the Senate will play a key role in influencing the prospects for the SEC proposal.

The advantage of nominating replacements for Ms. Stein and Mr. Piwowar together is that it is a bipartisan tandem for a Senate confirmation vote. The question is how quickly the nominees can move through the legislative process, which likely would include a Senate Banking Committee hearing.

With the GOP clinging to a one-seat Senate majority going into November's mid-term elections, GOP lawmakers may want to expedite Trump administration nominees, according to Jim Angel, a professor of finance at Georgetown University.

"They should be on a pretty quick time line," Mr. Angel said. "Next year, it will be much, much harder for the president to get anything through Congress."

Without an expedited process, the SEC could operate many months with three commissioners.

"If Congress doesn't act quickly, it would be possible for either side to stalemate [the advice rule] by refusing to provide a quorum," Ms. Roper said.

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