Each year for the last several years, we have shared with our readers our list of anticipated areas of regulatory focus for the coming year. Although we are one year into the Trump administration, making predictions about the future course of legislative and regulatory developments has not gotten any easier. We have omitted any discussion of issues that may arise as a result of tax law changes. Below, we highlight a number of the key matters affecting the U.S. market that we will be following closely:

Department of Labor's fiduciary rule: The Department of Labor's ("DOL") fiduciary rule has been highly controversial and has been challenged in court as well as through proposed legislation that would have rescinded the rule. In February 2017, President Trump directed the DOL to re-evaluate the fiduciary rule and its consequences. Only a portion of the DOL fiduciary rule as adopted in 2016 went into effect in June 2017, the initial applicability date. The remaining provisions were scheduled to become applicable in January 2018. However, recently, the DOL deferred the applicability date until July 1, 2019, in order to afford the DOL additional time to consider the issues that were identified in President Trump's directive. The delay also gives the DOL more time to coordinate with the SEC. The U.S. structured products industry will be significantly affected by these developments, including the types of products that are sold, what types of investors they are sold to, and the nature of the distribution arrangements and compensation.

SEC rulemaking on a heightened standard for broker-dealers: The SEC, led by Chair Jay Clayton, has shown interest in addressing a heightened standard for broker-dealers, which may be more akin to a "best interest" standard. Recently, the SEC requested public comment on questions relating to a uniform fiduciary standard for broker-dealers and investment advisers. The request for comments referenced the possibility of a disclosure-based approach to conflicts of interest, rather than focusing solely on a fiduciary standard such as that applicable to advisers. Any SEC standard will relate to retail investors generally and will not be limited to retirement accounts. It is reasonable to anticipate that in 2018, the SEC will propose for comment a heightened standard of care for broker-dealers.

FINRA rule on seniors: New FINRA Rule 2165 relating to the financial exploitation of seniors, and the accompanying amendments to FINRA Rule 4512, becomes effective on February 5, 2018. As we have discussed in our prior publications18, Rule 2165 allows broker-dealers to place a temporary hold on the disbursement of funds and securities from the accounts of seniors where there is a reasonable belief that financial exploitation is occurring.

Continued focus on seniors and other at risk investors: There are several legislative initiatives, including the Senior Safe Act, that have garnered bipartisan approval and that are intended to protect senior investors and other "at risk" investors from financial exploitation. In addition, state securities regulators remain focused, as does FINRA, on enforcement activities that target exploitation of seniors and at risk investors, including as a result of misselling, churning, reverse churning, and excessive fees.

FINRA fixed income mark-up rules: The amendments to FINRA Rule 2232 that will require broker-dealers to disclose additional transaction-related information, including mark-ups, for fixed income transactions entered into with retail customers on a principal basis become effective on May 14, 2018.

Amendments to other FINRA rules: In prior issues of this newsletter, we commented on FINRA's proposed amendments to FINRA Rule 5110, or the Corporate Financing Rule, which affects most financing transactions, as well as FINRA's request for comment regarding possible amendments to other FINRA rules that affect capital formation. We expect that the amendments to FINRA Rule 5110 will move forward early in 2018. FINRA has also announced its intention to amend its suitability rules to address concerns as to "churning."

FINRA 360 initiative and retrospective review of rules: Since announcing its FINRA 360 initiative, FINRA has undertaken a number of measures intended to provide greater transparency for broker-dealer member firms. Also, FINRA has announced a retrospective review of various of its rules. We expect that the 360 initiative will continue to provide useful information for member firms regarding FINRA's priorities, FINRA's exam findings, and other important matters.

FINRA guidance on social media: Although FINRA provided additional social media-related guidance earlier in the year, we expect that social media usage will continue to be an area of focus for FINRA, and additional guidance in the area may be needed. This guidance may be of increasing relevance to the structured products industry, as marketers use new media to communicate information about different product offerings.

FINRA examinations and enforcement: FINRA's recently issued report on examination findings highlights principal areas of interest. It is clear that FINRA will continue to remain focused on product suitability, misselling of complex products, fee disclosures, and similar issues.

FINRA's cross-selling sweep and conflicts of interest: In October 2016, FINRA announced a cross-selling sweep in which it requested information regarding the extent to which member firms were promoting bank products of affiliated or parent companies or other services offered by affiliates (such as securities-based lending arrangements) to retail broker-dealer accounts. We anticipate that both FINRA and the SEC will remain focused on broker-dealer conflicts of interest, incentives to recommend particular products (including proprietary products and structured products), and related matters.

SEC enforcement focus: As we have noted in prior issues of this newsletter, SEC Chair Clayton has made it clear that the SEC will focus on protecting retail investors. To that end, a Retail Strategy Task Force has been created within the Division of Enforcement that will seek to identify incidents of misconduct that target retail investors, including through the use of advanced data analytics. Recently, the SEC announced the appointment of a new chief of the Division's Complex Financial Instruments Unit. This unit will focus on misconduct related to complex financial products.

SEC rulemaking: Quite a number of the rulemaking initiatives that we have been following have been relegated to the "long-term actions" category in the SEC's most recently released regulatory agenda. For example, for some time now, we have been monitoring rulemaking mandated by the Dodd-Frank Act, including changes to various rules under the Securities Exchange Act to replace the use of credit ratings, the incentive-based compensation rules for financial services entities designed to mitigate excessive risk-taking, the conflicts of interest rule required by Section 621 of the Dodd-Frank Act, and various security-based swap rules--all of these have been sidelined for the moment.

Regulatory burden relief: Likely few of the regulatory burden relief measures being considered by the banking agencies or incorporated in proposed legislation will have a significant effect on the bank holding companies that are the principal issuers of structured notes in the U.S. market. Changes to the Volcker Rule, to the extent that these relate to the marketmaking and underwriting exceptions or clarify the definition of "proprietary trading," may be helpful to structured note issuers and their affiliated broker-dealers.

What's a "structured note"?: In Canada, for purposes of understanding which obligations are "bailed in"; in Europe, for purposes of MREL; and in the United States, for purposes of determining which debt securities are eligible long-term debt meeting the TLAC requirement, there likely will continue to be discussions relating to which types of notes are "structured notes."

Regulation of cryptocurrency: Many market participants have expressed interest in issuing notes that reference cryptocurrency-related indices, the performance of cryptocurrencies, or, more recently, futures contracts. Both the Commodity Futures Trading Commission and the SEC have been keenly focused on cryptocurrency and the regulation of various of the instruments being developed, marketed, and sold, which may, depending on format, be considered "commodities," "securities," or "futures." We anticipate that, given the degree of interest in the area and the pace of change, there are likely to be many developments to watch in 2018.

The year of platforms?: Industry participants seem quite interested in the development of various structured note issuance and pricing platforms. Depending upon the types of functionalities offered by a platform, there are many legal issues to consider for an issuer that chooses to have its structured notes offerings posted on the platform or that chooses to provide pricing. In a future issue of this newsletter, we will review with readers the SEC's views on liability for third-party content, the basics of hyperlinking, and the "envelope" and "cul-de-sac" approaches for websites containing offering-related materials and other non-offering-related content.