During a Congressional hearing earlier this week, Securities and Exchange Commission chairman Gary Gensler told lawmakers that the agency will ensure companies adhere to best interest “as written”. However, investor advocates say there is still scope to typically add more teeth through additional guidance.
“It is important that investors actually have brokers who have their best interests at heart,” replied Gensler to a question about Reg BI from Rep. Ann Wagner (R-Mo.). “And that’s exactly what we’re going to do. Through testing, enforcement, and guidance, ensure that the rule is fully followed as written. “
“We will get the best out of regulation, but we will also evaluate,” he added. “If it is not for the purposes of investors, we will update and refresh this rule and other rules.”
While Barbara Roper, director of investor protection at the Consumer Federation of America, has significant concerns about the proposed Reg BI, she believes Gensler’s comments could mean the SEC will apply the rule to better curb malpractice among flawed advisors . Roper does not expect Reg BI to be lifted, but with further instructions she believed the Commission could clarify that the term “best interest” does not mean aptitude and that conflicts of interest need to be adequately mitigated.
“There is a concerted effort in the industry to avoid“ best interest ”accountability,” she said. “When Gary Gensler says we’re going to get it done as it is written, I hear it as” best interest means best interest and you better get used to that “”. “
Critics usually and Trust lawyers have alleged that the rule’s use of the term “best interest” could mislead customers and that the SEC needs to clarify that brokers’ product recommendations differ from best interest trust advice.
Reg BI went into effect on June 30th last year, and the SEC’s Auditing Department clarified earlier this year that compliance with the rule will be guaranteed be a focus for 2021. In one previous interview with WealthManagement.com, Commissioner Caroline Crenshaw said the SEC would examine whether Reg BI would actually result in investors receiving advice that is in their best interests and whether it would actually reduce conflict.
Gensler’s comments came in the middle of one long hearing before the US House Committee on Financial Services that mainly focused on the GameStop and Robinhood controversy that winter.
As he testified, Gensler said the SEC was preparing a report on the market turmoil surrounding Robinhood and GameStop to be released this summer. He also urged investors to provide the SEC with public comments on the need to disclose climate change. March, Then-incumbent chairman Allison Herren Lee opened a comment period to help the SEC evaluate the disclosure rules. The comment period runs until June.
Gensler also noted that the ESG Enforcement Task Force Lee, announced in March, will review corporate compliance with the 2010 climate risk guidelines and assess whether companies are complying with any other disclosure requirements that may apply.
“There are already traffic rules in place,” he said. “We still have to enforce the old rules as forcefully as you would like.”