Memo from Mitchell Crabbe, Senior Securities Content Specialist at Kaplan Financial Education, on the 2019 Regulatory Focus according to SEC Chairman Jay Clayton.
As we are closing out 2018 (and what a whirlwind of a year it was), we are catching our collective breath and looking forward to spending time with family and friends as we celebrate the holidays! However, the regulators are already gearing up for a 2019 full of promise and challenges.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
In an effort to hit the ground running in a few weeks, we want to focus on Securities and Exchange Commission (SEC) Chairman Jay Clayton's declaration a few days ago that, finally putting the finishing touches to a key initiative on the agency’s advice standards package is a “key priority” for the securities regulator in 2019.
The “advice standard” which almost became law in 2017 as part of the Department of Labor’s efforts, was revised but, in 2018 was dropped as a final law. In order to clarify who is giving advice and getting paid for that advice versus who is making a recommendation, the SEC, under Mr. Clayton’s guidance, is driving toward the finish line for the advice standard.
The advice standards package is “a very important and long overdue initiative,” Clayton said. Many retail investors “do not have a firm grasp” of the important differences between broker-dealers and investment advisors, he said, noting that “this is a complex set of issues, no doubt, but we must also recognize that access to investment advice is increasingly important to our society.”
But, that’s only one priority. The other topics include, Cybersecurity, proxy access, digital assets and initial coin offerings (ICOs), the accredited investor definition and no more London Interbank Offered Rate (Libor).
Cybersecurity will continue as a priority in exams of broker-dealers and investment advisors, Clayton said, with the agency’s Cyber Unit dedicated to targeting cyber-related misconduct and assessing potential violations like “intrusions into retail brokerage accounts, the submission of false regulatory filings and hacking to obtain material nonpublic information.”
For proxy advisory firms, Clayton said he believes there’s “growing agreement that some changes are warranted.” For instance, “there should be greater clarity regarding the division of labor, responsibility and authority between proxy advisors and the investment advisors they serve.”
Begun in 2018, distributed ledger technology, digital assets and ICOs will continue to take a “significant” amount of the SEC’s time. Clayton’s view: ICOs “can be effective ways for entrepreneurs and others to raise capital,” but ‘the novel technological nature of an ICO does not change the fundamental point that, when a security is being offered,” securities laws must be followed.
Speaking about capital formation and investment opportunities, SEC staff is gearing up to solicit input via a concept release on whether the SEC’s “accredited investor definition” — a main regulatory threshold for participation in private offerings — “is appropriately tailored to address both investment opportunity and investor protection concerns,” stated the SEC chief.
And lastly, transitioning away from Libor as a benchmark reference for short-term interest rates, will need a structured look in 2019 and will likely happen after 2021. “It’s likely that banks currently reporting information used to set Libor will stop doing so after 2021, when their commitment to reporting information ends,” Clayton said.