The House passed an amendment attached to a larger spending bill Wednesday that prohibits the SEC from implementing its new standards-of-conduct package.
Rep. Maxine Waters, D-Calif., chairwoman of the House Financial Services Committee and a vocal opponent of the Securities and Exchange Commission package, proposed an amendment Monday to the Financial Services and General Government Appropriations Act of 2020, a bill that appropriates government spending for next year.
The amendment, which passed with a 227-200 vote, would prohibit the SEC from spending any money to implement the standards-of-conduct package, commonly known as Reg BI. The odds of it passing the Republican-controlled Senate are much steeper.
"These types of amendments to spending bills are generally disfavored by the appropriations committees, and I doubt that there is a majority of senators who would support this particular prohibition," said David G. Tittsworth, a lawyer at Ropes & Gray. "Even if there were enough votes to pass such an amendment in the Senate, there's certainly a chance that President Trump would veto such a bill and thus require a two-thirds vote in both the House and the Senate to override the veto."
Kevin Walsh, an attorney at Groom Law Group, said the amendment will not be signed into law and mainly serves as a messaging piece. "It signals that a future Democratic administration might feel differently and future commissioners who are more inclined to agree with Rep. Waters' analysis could want to revisit Reg BI," Mr. Walsh said.
The larger $47 billion spending bill funds the SEC, among myriad other federal departments, for fiscal year 2020. Ms. Waters' amendment states: "None of the funds made available by this Act may be used by the Securities and Exchange Commission to implement, administer, enforce, or publicize the final rules and interpretations of" the package.
SEC commissioners approved the package June 5 in a 3-1 vote. It features four components, including its centerpiece best-interest standard, which compels brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts. Critics say the measure is too ambiguous and does not establish a legally enforceable standard.
The Securities Industry and Financial Markets Association, a supporter of the SEC package, wrote to House members Tuesday urging them to vote down the amendment.
"Reg BI is the most comprehensive enhancement of standard of conduct rules governing broker-dealers since the enactment of the Securities Exchange Act of 1934," said Kenneth E. Bentsen, Jr., SIFMA president and CEO, in a statement. "It makes no sense to halt the orderly implementation of this important new set of regulations that would provide strong investor and consumer protections for 43 million households."
A fellow Reg BI proponent, the Insured Retirement Institute, also came out against the House vote. "Congress should allow the implementation of Reg BI to move forward, and it should be given time to work," said Paul Richman, IRI chief government and political affairs officer, in a statement. "This newly adopted rule raises the standard of conduct for financial professionals, expressly requiring them to act in their clients' best interest."