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From Securities Regulation Daily, November 18, 2015

Chair White explains and defends SEC initiatives

By Jacquelyn Lumb

Members of the House Financial Services Committee questioned SEC Chair Mary Jo White about the status of possible rulemaking on a uniform fiduciary standard for broker-dealers and investment advisers, a possible political contribution disclosure rule, and the JOBS Act rules, among other issues. White last testified before the Committee in March, and described the substantive rules that have been proposed or adopted in the months since her previous appearance.

Committee Chair Jeb Hensarling (R-Tex) opened the hearing by noting both good news and bad since White last testified. The good news was that the SEC finally completed the JOBS Act rulemaking to implement Regulation A+ and the crowdfunding rules, he said, and also that the SEC has asserted its jurisdiction to stop the Financial Stability Oversight Council from attempting to regulate asset managers like banks.

Hensarling’s criticisms. What is not so commendable, he said, was the partisan vote on which a pay ratio rule was adopted. He accused the SEC of squandering precious resources on a rule that does nothing to protect investors or to facilitate capital formation. He also warned the SEC that a political contribution disclosure rule is not within the SEC’s core competency or its mission. He urged the SEC to focus instead on a simplified disclosure regime.

Hensarling also criticized White’s direction to the staff to stop issuing guidance in the middle of the last proxy season rather than modernizing the proxy system, and said the universal proxy ballot favors special interests and short-termism rather than benefitting the majority of public company shareholders. Finally, he said the SEC has an opportunity to stop the Department of Labor from adopting rules that make financial advice and retirement planning less available and more expensive for retail investors. He urged the SEC to look carefully at the experience in the U.K., which has had a detrimental impact on investors.

Disclosure of political contributions. Rep. Michael Capuano (D-Mass) held the opposite view from Hensarling about the disclosure of political contributions. America has spoken, he said, which is evident from the submission of over one million comment letters urging the SEC to adopt a disclosure rule. White explained that there are very strong views on both sides of the issue and acknowledged the receipt of Capuano’s recent letter urging the SEC to adopt a disclosure rule, which was signed by 59 members of Congress. The SEC is focusing on its rulemaking mandates and mission-critical initiatives right now, she said. She added that the political contribution issue can be raised through the shareholder proposal process.

Uniform fiduciary rule. With respect to a uniform fiduciary rule, White said the DOL and the SEC must each decide for itself how to proceed. The staff has provided technical assistance to the DOL, and lent its expertise from the perspective of SEC-regulated entities. She assured the committee members that consistency is a goal, but the agencies’ different statutory requirements may lead to some differences in approach. Rep. Ann Wagner (R-Mo) noted that the DOL’s current proposal is 1,000 pages long and all of it is wrong. She said the proposal conflicts with the securities laws and contains definitions that are different from FINRA’s. White noted that even now the two agencies have different rules.

Two committee members pressed White to pledge not to take up any controversial votes until new commissioners are appointed and the Commission has all five members. White said that three-to-two votes have become part of the landscape. The Commission has to move its agenda as items are ready for a vote, she said, but she agreed to be sensitive to their concerns.

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