One of my priorities as President of the Public Investors Advocate Bar Association (PIABA) is to fight hard to oppose recent proposals and regulations from the Securities and Exchange Commission that will harm individual investors. Earlier this week, Senator Sherrod Brown (OH) stood up for Main Street investors and had some harsh criticism for SEC Chairman Jay Clayton, saying he has advanced “one bad rule after another” during his time at the agency. Well said, Senator. I could not agree more.
Clayton confirmed this week that after serving for three and a half years, he would resign his tenure at the end of this year.
Clayton has overseen the Commission through the implementation of “Regulation Best Interest,” or “Reg BI.” Reg BI is a package of rulemakings implemented this year pitched to the news media and Capitol Hill as improving protections for retail investors, when the truth is that it is actually a step backwards: it will leave investors with fewer protections in important areas than they would have had if the Commission had not acted.
During Tuesday’s Senate Banking Committee hearing on Commission oversight, Senator Brown recognized the problems with Reg BI, telling Clayton that it “doesn’t put mom-and-pop customers first.” Senator Brown is wary that Reg BI will help investors at all, a concerned shared by many investor protection advocates, including PIABA. PIABA fought hard against the implementation of Reg BI because it falls far short of what investors need and deserve. There is a reason why Wall Street clamored for Clayton’s Reg BI why it encountered nearly universal opposition from investor advocates.
Senator Brown has been an outspoken opponent of these recent Commission changes to broker-dealer’s standards of conduct. Last year, he issued a statement condemning Reg BI as “a confusing, jargon-filled document” that fails “to set a clear fiduciary standard that requires brokers to eliminate conflicts with their clients.”
During Tuesday’s hearing, Senator Brown also had sharp criticism for a newly released Commission proposal to dramatically expand the ability of unlicensed and unsupervised promoters, so-called “Finders,” to engage in certain brokerage activities on behalf of private issuers. The Commission wants to allow these Finders to earn commissions on the securities sales without being subject to the regulations designed to protect investors from unscrupulous brokerage activity. PIABA recently submitted a Comment Letter strongly opposing the proposal. The Commission is well aware that private markets, as compared to public markets, are less liquid, impose higher transaction costs, are susceptible to valuation errors, often provide opaque or de minimus financial information, and are highly prone to fraud. Finders in particular are often associated with fraudulent activity.
On Tuesday, Senator Brown closed his remarks by stating that “protecting workers’ hard-earned savings should begin with a simple concept: putting their interests first.” Senior Democratic SEC Commissioner Allison Lee likely will be named to serve as acting chair, Reuters reported. Commissioner Lee, like Senator Brown, has a strong history of being tough on Wall Street.
My hope and expectation with the new Administration is that the SEC can get back to doing what it is supposed to be doing: protecting Main Street investors.