During its annual OneVoice conference, the Financial Services Institute (FSI) announced a white paper that puts forth policies and procedural suggestions for the Securities and Exchange Commission, titled “Recommendations to the SEC to Modify its Procedural Framework to Prevent Regulation by Enforcement,” which furthers FSI’s activities on the issue.
According to FSI, regulation by enforcement occurs when organizations that made reasonable efforts to interpret the regulatory environment did not understand their action subject to enforcement was in violation. In the report, the organization sets out what it considers to be harmful effects of regulation by enforcement, including a perception of unfairness, violating the rights of the regulated, and circumvention of rulemaking requirements.
Dale Brown, FSI President and CEO, said, “Our members have experienced the harmful effects of regulation by enforcement first-hand. We share the Commission’s investor protection goals, and we strongly support regulations adopted through the proper rulemaking process. However, regulation by enforcement hinders independent financial services firms’ and financial advisors’ ability to properly serve their clients and confidently operate their businesses.”
The white paper recommends factors for the SEC to consider before “novel” enforcement action, discussion of the factors in recommendation and advice memos to the SEC, transparency on deliberation, and fairness audits by the Office of the Inspector General.
Brown continued, “This white paper provides common-sense solutions that will assist the SEC in detecting and preventing regulation by enforcement, and we welcome opportunities to collaborate with the SEC to curtail regulation by enforcement.”
Brown believes that the paper can be effective in changing minds at the SEC, due to the fact that it includes actionable recommendations. “We’re acknowledging that they have an important role in enforcing securities laws. They ultimately undermine their own important mission and role when using enforcement powers in a manner that is not transparent and not fair, which makes it harder and more expensive to comply.”
In discussing FSI’s overall mission and initiatives at FSI OneVoice, Brown said, “Very early on, we engaged in a strategy of constructive engagement. We could have been oppositional – and it would have been therapeutic – but ineffective in terms of getting results.”
Brown stated that many in Wall Street have gone upmarket, while FSI members often continue to reach the mass affluent investors, which he says is due to the fact that advisors can operate as individual contractors. “We believe constructive engagement means using every advocacy tool available. In the last few years, the available and effective tool at times is litigation. Our coalition stopped the 2016 DOL rule, and now we’re currently back in court on the independent contractor rule.”
Robin Traxler, SVP, Policy and Deputy General Counsel of FSI, said the organization’s top three priorities for 2024 are the independent contractor classification, the standard of care and regulation by enforcement.
Tim Stinson, FSI’s Vice Chair and President of Cetera Advisor Networks, gave a broad view of FSI’s work. “A slew of new regulations and proposals from the SEC and DOL require attention. Our focus around collaboration with the parties on both sides of Congress, as well as professional agencies, is crucial.”
Stinson also described other important initiatives of the organization, including its task force to attract Next Gen advisors to address the aging advisor base, as well as increasing diversity in the profession in line with changing demographics. “We have to do a better job of developing young, diverse talent into financial professions.”
Julius Buchanan, Editor in Chief at Wealth Solutions Report, can be reached at firstname.lastname@example.org.