SEC Chairman Jay Clayton pledged to move forward on the fiduciary rule in a “coordinated” process with the Department of Labor.
Clayton presented the agency’s trimmed-down $1.6 billion budget request before a Senate subcommittee Tuesday, noting more than half would pay for enforcement and examinations. The SEC and Labor Department must work together on “the very complicated issue” of the rule, he said.
"It's not separate," Clayton said. "What's happening at the Department of Labor is going to affect the markets we regulate, and vice versa."
Critics of the rule have argued that the SEC should take the lead, while its advocates say the agency has already had enough time to act. The rule’s fate remains uncertain even though part of it went into effect earlier this month.
"I don't want to see any of these actions that we would take reduce the access to investment advice or the access to investment products," Clayton said. "At the same time," he added, the agency must ensure it is "very much fulfilling our investor protection mission."
Clayton confirmed that he took one of his earliest actions as head of the SEC -- the call for public comment on a uniform fiduciary standard for brokers and advisers -- "in light of the Department of Labor moving forward with the fiduciary rule, at least the first phase of it."
ADVISER EXAMS IN FOCUS
Clayton focuses much of his attention on activities that harm retail investors, he told lawmakers. As such, he signaled that the agency’s Office of Compliance Inspections and Examinations will aim more of its probes at advisers, even with lower funding.
Clayton is seeking nearly $507.5 million for enforcement, the largest line item in the budget request but roughly $10.5 million less than this year. He asked for $340.8 million for OCIE, down from $346.2 million in 2017.
In a reflection of something of a “do more with less” mantra for the agency, Clayton promised that OCIE would increase the number of exams. Adviser exams will grow by 20% this year, and Clayton is projecting an additional 5% increase in 2018.
Last year, OCIE conducted exams of 11% of all RIAs, and the division is hopes to examine 13% both this year and next. OCIE has been hiring new examiners and shifting personnel away from other parts of the division, most notably the broker-dealer unit.
OCIE will try to stretch its resources further though the use of technology and more precise market surveillance, according to Clayton. Its probes of cybersecurity compliance will also increase, he said.
“I expect that for at least the next several years we will need to do more each year to increase the agency’s examination coverage of investment advisers in light of continuing changes in the markets,” Clayton said.
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