SEC Chairman Jay Clayton had an active June with rule-making proposals. But with the SEC's four commissioners now split along party lines after Republican Michael S. Piwowar's resignation on July 7, the commission is expected to face a struggle over contentious measures.
A tiebreaker could be on the way. Mr. Piwowar's replacement, Elad Roisman, chief counsel to the Senate Banking Committee, is now moving through the Senate confirmation process.
In June, Mr. Piwowar's last full month on the commission, the Securities and Exchange Commission proposed three rules, including two on successive days at the end of the month. One rule would make it simpler for exchange-traded funds to begin operating, and the second on the commission's whistleblower program would give the commission discretion to reduce awards of more than $30 million. By a 3-2 vote along party lines, the SEC also voted in June to propose for public comment amendments to the Volcker rule, which prohibits federally backed financial institutions from engaging in proprietary trading or having interests in private equity or hedge funds.
The Volcker rule changes include tailoring rules to a bank's size and clarifying exemptions for banks' proprietary trading activity. The comment period is currently set to end on Sept. 17, 60 days after the proposal was published in the Federal Register.
"I assume that one reason we saw a flurry of proposals a month ago is because the chairman was taking advantage of Piwowar's final days," said Bartlett Naylor, financial policy advocate for Washington-based watchdog group Public Citizen. "But I assume until he gets a third Republican, he's not going to be pushing anything that he really wants."
According to David Tittsworth, a lawyer with Ropes & Gray LLP in Washington and former president and CEO of the Investment Adviser Association, the most controversial issue on the table is the SEC's push for a best-interest standard that compels brokers to put clients' financial interests ahead of their own, requires them to mitigate financial conflicts, and prevents brokers from using the terms "adviser" or "advisor" to describe themselves.
The Department of Labor's fiduciary rule was similar in scope, but the 5th U.S. Circuit Court of Appeals vacated it in March, saying it represented regulatory overreach. The DOL in June decided not to appeal the decision.