Clayton hints Reg BI may be out earlier than expected

SEC chair didn't offer details but said: "You won't have to wait long"

May 2, 2019 @ 2:08 pm

By Mark Schoeff Jr.

Securities and Exchange Commission Chairman Jay Clayton remained tight-lipped about investment advice reform regulation on Thursday, but he hinted that it might be released sooner than expected.

In a discussion with reporters, he sidestepped a question about how the centerpiece of the package, so-called Regulation Best Interest, would address mitigation of broker conflicts of interest.

"Wait and see," Mr. Clayton said on the sidelines of an Investment Company Institute annual meeting in Washington. "You won't have to wait long."

Mr. Clayton seemed to suggest that a final rule was imminent. Most observers are predicting a release sometime this summer. Mr. Clayton didn't elaborate on a timeline.

(More: Valerie Brown discusses the SEC advice rule and why it should preempt state efforts)

How quickly a final rule emerges depends on how many votes from the current four-member commission Mr. Clayton wants to secure. The fifth SEC seat is currently open.

In a speech last month, SEC member Robert Jackson, Jr.. urged Mr. Clayton to build bipartisan support for a final rule. Mr. Jackson, who was chosen by Democratic lawmakers, has expressed concerns about Regulation Best Interest.

Republican commission members Hester Peirce and Elad Roisman are expected to vote in favor of a final rule. Combined with Mr. Clayton's support, that would give the commission the three-member majority needed for approval.

The Trump administration has nominated Allison H. Lee for the open Democratic SEC seat. It may take several weeks for her to obtain Senate confirmation. It's not clear whether Mr. Clayton will wait for her to come on board before holding a vote.

As the SEC nears completion of its work on investment advice reform, Labor Secretary Alexander Acosta told lawmakers on Wednesday that the agency would revisit advice rules for retirement accounts. He suggested new regulations to replace the defunct DOL fiduciary rule would be based on the pending SEC package.

Most of the financial industry opposed the DOL rule, asserting that it would increase regulatory burdens and legal risk for brokers. ICI chief executive Paul Schott Stevens criticized the DOL rule in a Q&A with Mr. Clayton at the conference.

Mr. Clayton stressed the SEC advice rule would preserve the brokerage model. He said investors benefit when they have a choice between brokers and investment advisers, who would continue to meet a fiduciary standard under SEC regulation.

(More:Best the SEC can do or huge step backward? Industry leaders tussle over advice reform)

"Competition among the people in this audience has in many ways inured to the benefit of investors over time," Mr. Clayton told the ICI conference. "People are paying less for better service, and I want to continue that trend."

An investor advocate said Regulation Best Interest lacks the teeth to change broker conflicts that harm investors.

"Since Reg BI does not require brokers to do anything different to mitigate conflicts, there's no threat to the broker model," said Knut Rostad, president of the Institute for the Fiduciary Standard.


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