Today, we offer our “Friday List,” an occasional feature summarizing a topic significant to investment management professionals interested in regulatory issues. Our Friday Lists are an expanded “Our Take” on a particular subject, offering our unique (and sometimes controversial) perspective on an industry topic.
Every year, we offer our predictions on what will happen in the investment management regulatory world. Two years ago, we went 6-4, accurately predicting that the SEC would bring a landmark enforcement action against a private equity firm and that both Norm Champ (Investment Management) and Drew Bowden (OCIE) would resign. Last year, we went 4-3-3. We accurately predicted such events as the SEC bringing a gatekeeper case against a law firm and that the insurance industry would start offering CCO insurance. We claim “ties” for predictions that were close: the SEC will commence an enforcement action against a robo-adviser (wrong, but Massachusetts came out strongly against robos), and the SEC will propose third party compliance reviews (wrong, but Mary Jo White said the proposal is on the desk of the Commissioners).
So, without further sandbagging, here are our 2017 predictions:
10 Predictions for the 2017 Regulatory Year:
- The new Administration will delay implementation of the DoL Fiduciary Rule. Although we think the Rule will ultimately take effect with some modification, it may take some time. Most agree with the basic principle of protecting retail IRAs, but many industry participants are struggling with adequate and expeditious implementation.
- The SEC will propose third party RIA compliance exams. Paul Atkins, who leads the transition team on financial regulatory issues, works with Dan Gallagher, who, as an SEC Commissioner, initially suggested this concept to ensure more reviews of registered investment advisers.
- Whistleblowers: The Office of the Whistleblower will survive, and there will be more claims and more retaliation cases. We believe this is one part of Dodd-Frank that will survive because everybody gets behind blowing the whistle on corporate wrongdoing.
- The SEC will raise the threshold for private fund registration above $150 Million. Both Democrats and Republicans can agree to this change to Dodd-Frank and which has been supported by Barney Frank himself.
- FINRA will become the primary regulator for retail advisers and brokers. As the SEC backs away from retail enforcement and examination efforts, look for FINRA to step into the regulatory void.
- State regulators will bring 2-3 precedent-setting enforcement actions. Consistent with the FINRA theme, look for Spitzer-esque regulators to flex their regulatory muscles if the SEC shrinks away.
- SEC penalty caps will increase. This is a component of the Rep. Hensarling-sponsored CHOICE Act (aimed at Dodd-Frank reform) with which both parties agree.
- The SEC will focus on prosecuting individuals, not firms. Mr. Atkins has opposed large corporate penalties that ultimately hurt shareholders. However, the SEC will continue its policy of prosecuting individuals.
- There will be an acceleration of outsourcing non-core functions. As scale becomes increasingly important, look for firms to find new ways to focus on their core competencies and outsource non-core functions.
- Firms and regulators will struggle with bond pricing. The more volatile bond markets resulting from changes in macro-economic policy will make life difficult for those responsible for bond pricing.