On Friday, the Treasury released a Fact Sheet summarizing the Administration’s proposed legislation to increase the SEC’s authority to enact and enforce investor protection measures and proposed legislative language. The Fact Sheet was divided into four main categories: fairness, disclosure, accountability and investor engagement.
Fairness. The Administration’s proposals would give the SEC the authority to establish, by rulemaking, a uniform fiduciary duty standard for brokers, dealers and investment advisers who offer investment advice. The proposed standard would require brokers, dealers and investment advisers “in providing investment advice about securities to retail customers or clients (and such other customers or clients as the Commission may by rule provide), … to act solely in the interest of the customer or client without regard to the financial or other interest of the broker, dealer or investment adviser providing the advice.” The proposed legislation also would give the SEC the power to examine, and possibly ban, “sales practices, conflicts of interest, and compensation schemes for financial intermediaries (including brokers, dealers, and investment advisers) that it deems contrary to the public interest and the interests of investors.” Finally, the proposal would allow the SEC to prohibit mandatory arbitration clauses in broker-dealer, municipal securities dealer and investment advisory agreements.
Disclosure. The proposed legislation would “clarify” the SEC’s authority “to promulgate rules designating documents or information that must precede a sale to a purchaser of securities issued by a registered investment company.” The Fact Sheet indicates that the Administration expects the SEC to use this authority to adopt rules requiring certain disclosures, such as concise summary prospectuses and disclosures showing the costs of investment in a fund in comparison to other funds, be provided to investors at or before the time of purchase, rather than afterwards. The legislation also urges the SEC to conduct consumer testing in an effort to better evaluate, and improve upon, investor disclosure.
Accountability. The proposals would grant the SEC the authority to pay whistleblowers for information leading to enforcement actions that result in significant financial rewards. Next, the proposed legislation would expand the SEC’s authority to charge individuals with aiding and abetting securities fraud to cover cases of fraud brought under the Securities Act of 1933 and the Investment Company Act of 1940, as well as those cases brought under the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. Finally, the proposed legislation would impose industry-wide bars against regulated persons who are found guilty of serious misconduct, rather than banning them from just one specific segment of the industry.
Investor Engagement. The proposed legislation would make permanent the Investor Advisory Committee recently created by the SEC.