The newest SEC commissioner, Daniel Gallagher, challenged SEC head Mary Schapiro’s statement that a new rule to put brokers under a fiduciary mandate could be proposed next year.
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He suggested the SEC first determine if such a new rule were really necessary and that the agency might do better to issue guidance regarding failure to supervise.
Gallagher pointed out that the Dodd-Frank Act’s Section 913 did not mandate such a rule.
Section 913 granted the SEC the authority to write such a rule if it was necessary but it left it up to the agency to determine that necessity.
It also gave leeway for the regulatory body to assess in detail the economic consequences of imposing such a rule.
He cited the different standards to which registered investment advisors and registered reps are held and pointed to the one area where the Exchange Act and the Advisors Act were in sync: their treatment of failure to supervise liability for compliance and legal personnel.
The issue of a fiduciary standard continues to be disturbingly murky. The issue of failure to supervise, on the other hand, has once again become very relevant.
The failure to supervise jurisprudence primarily emanates from broker-dealers rather than from investment advisors.
Gallagher advised that the SEC’s failure to supervise regulatory efforts should include a series of guideposts and safe harbors, avoiding rigid standards
that would make legal and compliance personnel afraid to act because of liability from any possible missteps.