For SIFMA’s recent annual Compliance and Legal Seminar in Orlando, Fla., attended by close to 2,000 compliance professionals, the theme was, “A Constant Voice Through 50 Years of Change.” (See the documentary-style video that set the stage for the conference.)
There definitely was change in the air.
During the second day, a Nor’easter threatened to blast the northeast coast with heavy snow. Many attendees scrambled to reschedule their flights before cancellation. My flight from San Francisco to New York was preemptively cancelled. I wasn’t too worried though; Florida is quite pleasant this time of year. Or so I thought. Once in Orlando, a heavy rainstorm accompanied by what felt like hurricane-strength winds forced the evening cocktail reception to be moved indoors.
The unreliable weather patterns on the east coast weren’t the only things that were rapidly changing. The anticipation of change within the compliance world was simultaneously brewing – stirred by the abandonment of the Department of Labor’s (DOL) fiduciary rule just days prior to the conference.
That decision, made by a 2-1 vote from the Fifth Circuit Court of Appeals, brought a renewed energy and interesting discourse among the panelists and attendees. People were excited, concerned and, to a certain extent, validly frustrated. For years, financial institutions have been dedicating enormous amounts of time and resources in adopting new procedures to comply with the fiduciary rule. The resounding question on attendees’ minds throughout the three-day event was, “Now what?”
Countdown to May 7
The DOL has 45 days from the March 15 entry of judgement decision to appeal for an en banc – or full court – review by the Fifth Circuit Court. (The original decision was made by a bench of three selected judges from the Fifth Circuit Court.) The DOL also has the option to petition the Supreme Court to grant a writ of certiorari (review of the lower court’s decision).
Top of mind for several panelists was how the U.S. president’s position on the fiduciary rule (and how it “may not be consistent with the policies of [his] Administration”) might affect the rule’s future. The consensus – based on President Trump’s prior orders directing the DOL to reconsider the fiduciary rule – was that the DOL will likely not appeal the Fifth Circuit’s decision or appeal to the Supreme Court. As of April 16, the DOL has not yet taken any action.
Possible Post-May 7 Scenario: An SEC “Best Interest” Rule
Many legal and compliance experts, including Hearsay’s team, believe that even though the Fifth Circuit case may not be challenged, the “best interest” portion of the DOL fiduciary rule may still be carried forward – just through a different government agency.
The Securities and Exchange Commission (SEC) is planning on releasing a proposal in 2018 with a goal of requiring brokers to apply a customer “best interest” standard to brokerage accounts. This authority was given to the SEC in 2010 under a provision of the Dodd-Frank financial reform law. During a 45-minute question-and-answer session with SEC Chairman Jay Clayton, president and CEO of SIFMA, Ken Bentsen, asked when the agency would release its version of the rule. “Soon is fair,” Clayton responded. “From my perspective, the sooner the better. I’m not sitting on this.”
It’s also important to note that the SEC will have to provide a notice and comment period on its proposal as well, further delaying much needed guidance.
Uncertainty continues to linger like a dark cloud over the future of a “fiduciary” or “best interest” rule, leaving financial institutions left out in the rain and unable to plan their next steps. The overall consensus among many law firms, panelists and conference attendees: Do not make changes to current policies and procedures already adopted regarding the fiduciary rule until the dust settles come May 7.
Check back for more updates.
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