Stop the SEC’s Regulating without Rules

Financial Services Institute / Stop the SEC’s Regulating without Rules

Ask your member of Congress to tell the SEC to stop #RegsWithoutRules


It’s time for the SEC to return to required rulemaking to impose new regulations, rather than regulating without rules. A recent initiative (Share Class Selection Disclosure Initiative) launched by the SEC Enforcement Division in February 2018 collected $125 million from almost 80 investment advisers.

However, the enforcement staff could not cite a clear rule or regulation that had been violated. Instead, the SEC relied on previous settlements and past published guidance (which are statements of the staff’s view on a topic at a given time) to squeeze settlements from businesses today. The SEC enforcement division is reportedly now moving to a second, more “expansive” phase in this “regulating without rules” initiative, which could reach even more investment advisers and firms.

This kind of drive-by regulating without rules harms independent financial services firms and American investors. Independent financial firms and advisors have a reasonable expectation the SEC will establish clear rules of the road before engaging in enforcement. Regulating without rules creates uncertainty because it does not give notice to firms of how they should operate their businesses, leads to inconsistencies in interpretation and enforcement, and increases costs for investors.

The SEC’s actions are contrary to the requirements that are in place, which impose a deliberative rulemaking process the SEC must follow when it wishes to impose general requirements or standards on the industry.

It’s time for the SEC to return to required rulemaking to impose clear regulations, rather than regulation established through enforcement action. The Commissioners should instruct the enforcement division to stay further enforcement actions under the current share class disclosure initiative, and not expand it further, until appropriate rules addressing the Commission’s concerns have been adopted. Any rulemaking should be transparent, allow interested members of the public to provide comment and include an appropriate phase-in period to allow firms to develop and implement plans to comply with the new rules, with consideration given to grandfathering established practices.

You can help stop this.  Ask Congress to tell the SEC to stop regulating without rules now!

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