Although President-elect Joe Biden will exert considerable influence over the Securities and Exchange Commission, the agency's Regulation Best Interest is probably not going anywhere.
At least not right away, say industry officials.
"My sense is that they'll really want to come in and give this regulation a chance to demonstrate its effectiveness," said Jason Berkowitz, chief legal and regulatory affairs officer with the Insured Retirement Institute.
Chairman Jay Clayton made his departure from the SEC official on Monday morning. It is tradition for the SEC chair to resign upon the change of administration. Speculation began over the weekend on possible replacements.
Bloomberg summarized the intriguing candidates for possible Biden nomination to the SEC:
- Gary Gensler: Former head of the Commodities Futures Trading Commission.
- Preet Bharara: Former U.S. Attorney for the Southern District of New York from 2009 to 2017.
- Michael Barr: Former top aide to ex-Treasury Secretary Timothy Geithner.
- Chris Brummer: Georgetown University Law Professor who would be the first African-American SEC chairman.
- Robert Jackson and Kara Stein: Former SEC commissioners who would satisfy the progressive (Stein) and moderate (Jackson) wings of Biden's party.
'Much More Familiar'
It is less likely that Biden would want an SEC chair from a hardline regulatory or prosecutorial background, said Tom O. Gorman, partner at the Dorsey & Whitney law firm.
"I would think that you would want to find someone who is much more familiar with regulatory agencies," he explained. "Now, that being said, it doesn't mean that you're not going to change philosophy."
Prior to joining the SEC, Clayton was a partner at Sullivan & Cromwell, where he was co-head of the firm’s corporate practice. His four years at the helm were relatively quiet, with Reg BI being perhaps the agency's most significant accomplishment.
The SEC rule took effect June 30 and, so far, with little fanfare or disruption to the brokerage industry.
Reg BI requires the following factors be considered in developing a recommendation for a retail customer: the customer’s investment profile, potential risks and rewards, and costs. It also includes a new "customer relationship summary" disclosure between broker and customer.
One reason the rule has not caused much disruption is the SEC's commitment to a soft rollout. The agency said it is merely looking for brokers and firms to make an initial "good faith effort" to comply.
Amendments An Option
The SEC Office of Compliance, Inspections and Examinations data from the latest round of inspections will give the commission a lot of input on potential amendments to Reg BI, Gorman said.
"You can amend those regulations and do a lot of what people want to do with a couple of amendments," he added. "So that would be something that you might see, rather than just saying, 'Let's scrap and start again.' We already had nine years, so why rehash all of that?"
Senior Democratic SEC Commissioner Allison Lee likely will be named to serve as acting chair until a Biden appointee is confirmed. With the control of the Senate undecided until a January runoff election in Georgia, it could take some time for confirmation to occur.
A Biden-influenced SEC could also look to beef up disclosure rules on issues it considers important, Gorman said, such as climate change. In September, the CFTC released a task force report urging all financial regulators to “move urgently and decisively” to confront the “serious emerging risks to the U.S. financial system” posed by climate change.
SEC regulations on these disclosures are "having no impact," Gorman said.
"A lot of companies out there have a lot at stake depending on what happens with the environment," he added. "So one of the things that [the SEC] could look at is making these disclosures meaningful."
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.
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