DOL, SEC Rules May Not Be Perfectly Aligned

Contrary to some reports, the Department of Labor and the Securities and Exchange Commission have been working together as they each develop their respective fiduciary rules.  But this cooperation doesn’t mean the final rules will be perfectly aligned.

DOL will issue the new fiduciary rule this spring.  The department is expected to scale back the final regulation from the proposed version by reducing the administrative burden on the financial services industry.

Simultaneously, the SEC has been working on its own Personalized Investment Advice Rule.  Congress granted the SEC the authority to set a universal standard of conduct for investment advisors when it passed the Dodd-Frank financial reform bill in 2010.

Coordination Between the Two Agencies

Some policymakers and members of the industry have expressed concerns about a lack of coordination between the DOL and the SEC.  In February, Sen. Ron Johnson, R-Wis., issued a report asserting the DOL used a broken process in developing the forthcoming fiduciary rule and did not consult the SEC.

However, a source close to the DOL said the department met with SEC executives and staff multiple times when developing its proposed fiduciary rule.

And SEC Chairwoman Mary Jo White said in testimony to Congress on Tuesday, “the staff of the SEC did provide substantial technical assistance to the Department of Labor, including bringing our staff expertise on the broker/dealer model [and] their views about possible impacts of various permutations of the rule.”

In addition, the Office of Regulatory and Information Affairs at the Office of Management and Budget has the responsibility to coordinate regulations across agencies.  In 1993, an executive order set forth the responsibilities for the head of OIRA, including, “the administrator of OIRA shall provide meaningful guidance and oversight so that each agency’s regulatory actions…do not conflict with the policies or actions of another agency.”

Differences Between the Rules

Beyond the amount of coordination, the industry is apprehensive about the potential difficulty of complying with two different rules from two different government agencies.

But expecting the two fiduciary rules to be identical could be overly simplistic.  The DOL and the SEC look through two different lenses when viewing the fiduciary issue.

Former DOL Deputy Secretary and current counsel at the law firm Dentons, Seth D. Harris, offered a framework to understand the differences.  The DOL uses a prohibition regime when regulating activities related to the Employee Retirement Income Security Act.  That is, ERISA-related laws and regulations outlaw certain activities and enforce infractions.  The SEC uses a disclosure regime, which grants entities the ability to fully disclose information up front in order to minimize enforcement actions.

The agencies’ different roles and responsibilities mean the rules are unlikely to be perfectly aligned, according to those who are familiar with the issue.

Indeed, as SEC Chairwoman Mary Jo White said in her congressional testimony, regulations “don’t always land identically; you try to make them land identically if you can, but [the SEC and DOL] are separate agencies, [with] separate statutory mandates.”

Julie M. Anderson served as an executive in the Obama Administration and at IBM.  She now leads AG Strategy Group, which provides strategy consulting and management training services to government agencies and federal contracting companies. Julie may be contacted at [email protected].

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Julie M. Anderson served as an executive in the Obama Administration and at IBM. She now leads AG Strategy Group, which provides strategy consulting and management training services to government agencies and federal contracting companies. Julie may be contacted at [email protected].