The Securities and Exchange Commission's final rule for its standards of conduct package could be delayed because the partial government shutdown has furloughed the vast majority of SEC employees.
The SEC is aiming to issue its final rule on the package, also known as Reg Best Interest, by September, but David G. Tittsworth, a lawyer at Ropes & Gray, said all rule-making is effectively on hold during the shutdown and the timeline for proposed rules could be pushed back.
In the agency's shutdown plan posted on its website, it said "all non-emergency rule-making; non-emergency interpretive advice, staff no-action letters and processing new or pending applications for exemptive relief" will be discontinued during the shutdown.
"With each passing day, there's more uncertainty, there's more frustration," Mr. Tittsworth said. "It's not clear at all what will happen once the shutdown ends, how the SEC will deal with the backlog that is piling up."
While Mr. Tittsworth said pressure continues to mount on President Donald Trump and members of Congress to bring the impasse to an end, if the shutdown persists, it "could disrupt the plans of (SEC Chairman) Jay Clayton to get some rule-makings done."
The SEC's standards of conduct package proposal was approved by the commission in April and garnered more than 6,000 comments during a comment period that ended in August. The proposal has three legs: the best-interest standard, which compels brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts; the client relationship summary, or Form CRS, which necessitates that firms disclose to retail investors the nature and scope of their services, the types of fees customers would incur, the conflicts of interest faced by the firm and the firm's disciplinary history; and a proposed standard of conduct for investment advisers that states advisers have a duty to act and provide advice that is in the best interest of the client.
