The Insured Retirement Institute is pushing for Congress to approve Securities and Exchange Commission funding that includes boosts in its exam and enforcement capabilities to better oversee Regulation Best Interest and Form CRS.
The IRI sent a letter to numerous U.S. House leaders, including Speaker Nancy Pelosi (D-Calif.), House Majority Leader Steny Hoyer (D-Md.) and Minority Leader Kevin McCarthy (R-Calif.) and Whip Steve Scalise (D-La.), urging Congress to approve the funding for FY 2023 that’s already passed out of the House Appropriations Committee.
In the letter, IRI President and CEO Wayne Chopus wrote the funding would ensure the regulator has “sufficient staffing and resources” to pursue Reg BI and CRS issues.
“SEC Chairman Gary Gensler has been emphatic in expressing his commitment to ensuring that these rules have the intended impact on investor protection,” Chopus wrote. “The IRI fully supports Chairman Gensler’s objective.”
The letter to House leaders was preceded by a similar missive sent last week to U.S. Senate leaders Sen. Chris Van Hollen (D-Md.), chair of the Subcommittee on Financial Services & General Government in the Appropriations Committee, and Sen. Cindy Hyde-Smith (R-Miss.), the subcommittee’s ranking member. In the letter, Chopus called for the Senate to back the SEC’s request for more manpower.
In total, the commission sought 400 new positions in FY 2023, according to the SEC’s FY 2023 Congressional Budget Justification. The SEC requested 125 new positions for its Enforcement Division, including 44 to investigate misconduct and accelerate enforcement actions, 34 for litigation support, 33 to boost its cyber unit and 14 for additional account and operational needs.
The Exam Division requested 90 new positions, including 34 for dedicated oversight of investment advisors, and 25 for broker/dealers “with a focus on Regulation Best Interest,” according to the report.
Last month, the commission filed its first Reg BI violation case, charging a California-based brokerage firm and five of its reps with violating the rule’s obligations by recommending and selling “L” bonds to retail investors, despite the brokers having “an insufficient, and sometimes erroneous” understanding of investment vehicles, according to the complaint.
The case, and the fact that it was being litigated, indicated the commission was taking “a more aggressive approach” on Reg BI enforcement, according to Micah Hauptman, the director of investor protection at the Consumer Federation of America.
“This is the SEC acting as we want them to,” he said.
Last year, the SEC brought its first enforcement actions for Form CRS lapses, charging 21 investment advisory firms and six broker/dealers for not filing or posting their forms until they’d received numerous reminders from regulators. The commission has continued to bring CRS-related actions in the past year, including in April when the Enforcement Division charged ARS Capital Advisors with failing to deliver the disclosure to clients by its deadline (both Reg BI and Form CRS went into effect in June 2020).
Many regulatory experts weren’t surprised the commission led with CRS-related violations; Ben Edwards, a professor at the William S. Boyd School of Law at the University of Nevada, described them as “low-hanging fruit” during a February panel sponsored by the Institute for the Fiduciary Standard.
“In some sense, this fruit isn’t even hanging on the tree,” he said. “It’s lying on the ground."
