Policy/Legislation

Gensler Asks Senate for More Reg BI Exam Funding: ThinkAdvisor reports that Securities and Exchange Commission Chair Gary Gensler told senators last week that the agency needs more resources, noting that the exam division’s “work is essential to ensuring strong compliance across the board,” including “work to test for compliance with Regulation Best Interest.” In testimony before the Senate Banking Committee, Gensler said that the enforcement division “is doing more with less.” For example, “more cases are being litigated and going to trial. The SEC has tried the same number of cases to verdict in federal courts in FY22 (14) as we did in the prior three fiscal years combined.” In fiscal 2021, Gensler said, the agency received 46,000 tips, complaints and referrals from the public, up from about 16,000 five years earlier.

SEC Chair Defends Climate Disclosure Proposal: InvestmentNews reports that although he was pressed by a Republican lawmaker to drop a climate disclosure proposal, Securities and Exchange Commission Chair Gary Gensler stood his ground on the rule last week in a Capitol Hill appearance. Senate Banking Committee Ranking Member Patrick Toomey (R-PA) asked Gensler if he would rescind the proposal given a recent Supreme Court decision that held that government agencies must have a clear directive from Congress before pursuing major rulemakings. Toomey suggested the SEC lacks the authority to promulgate the climate rule, which would require public companies to disclose for the first time how climate change could impact their business performance and how they contribute to climate change. Gensler responded that the agency is considering the proposal in light of the agency’s authorities and the law. He added that investors are demanding the disclosures, pointing to feedback the SEC has received in more than 14,000 comments. “Most of the comments are supportive,” Gensler said. Toomey countered that the SEC is headed for a court challenge if it issues a final rule.

Congress May Raise 1099-K Reporting Threshold in Tax Extenders Package: Accounting Today reports that advocates are pushing for Congress to restore the $20,000 threshold for reporting transactions from payment cards and third-party networks after it was lowered by the American Rescue Plan Act to just $600, warning of a tidal wave of Forms 1099-K hitting millions of unsuspecting taxpayers and an already overburdened Internal Revenue Service and overworked tax preparers. Lawmakers may suspend the change in the threshold during the lame duck session in Congress after the midterm elections as part of an end-of-year tax extenders package.

House Committee Approves Two Social Security Rule Changes: ThinkAdvisor reports that the House Ways and Means Committee Tuesday reported the Social Security Fairness Act of 2021, which repeals Social Security’s Windfall Elimination Provision (WEP), a law that reduces the social security benefits of certain public workers — like teachers — who receive pensions and don’t pay social security taxes.

The bill also eliminates the government pension offset (GPO), which in various instances reduces social security survivors’ benefits for spouses, widows and widowers who also receive government pensions of their own. The WEP, in some instances, reduces social security benefits for individuals who also receive a pension or disability benefit from an employer that did not withhold social security taxes. If passed by the full House and Senate, the bill’s changes would be effective for benefits payable after December 2021. However, the committee took up the measure in a procedural move that avoids a mandatory vote on the House floor, reporting it to the full chamber by voice vote without recommendation.

Financial Industry and Regulation

SEC Releases Risk Alert on Marketing Rule Exams: ThinkAdvisor reports that the Securities and Exchange Commission Monday released a risk alert highlighting the upcoming Nov. 4 compliance date for its new marketing rule and outlining areas of focus for examiners. As of Nov. 4, the SEC warns, advisors may no longer choose to comply with the previous advertising and cash solicitation rules. Further, the SEC is withdrawing certain staff statements relating to those rules. Advisors should consider whether they need to update or revise their written policies and procedures, as required by Advisers Act Rule 206(4)-7, “to ensure they are reasonably designed to prevent violations by the advisers and their supervised persons of the Marketing Rule,” the SEC states. The agency also warns that Advisers Act Rule 204-2 (the Books and Records Rule), as amended, “will require investment advisers to make and keep certain records, such as records of all advertisements they disseminate, including certain internal working papers, performance related information, and documentation for oral advertisements, testimonials, and endorsements.”

NASAA Follows FINRA on Maintaining Licenses: InvestmentNews reports that the North American Securities Administrators Association this week approved two model rules that would allow financial advisers to maintain their licenses when they leave the industry for a certain amount of time to deal with life events. Both measures advanced by the NASAA — one that addresses examination requirements for broker-dealer agents and another for investment adviser representatives — enable brokers to return to the industry within five years without retaking licensing exams as long as they complete annual continuing education. The NASAA model rules align with a FINRA initiative — the Maintaining Qualifications Program — that the broker-dealer self-regulator recently implemented. Under the program, the grace period was extended from two to five years for resuming broker work without going through the exam process again.

SEC Urged to Update US Accounting Standards: The Financial Times reports that frustrated investors are demanding a shake-up of the top U.S. accounting rule maker, saying its outdated standards mean companies’ financial statements no longer properly reflect their underlying businesses. An influential advisory group said that the Financial Accounting Standards Board needs tough new oversight and a revamped decision-making process to speed up its work. It can sometimes take more than 20 years to update rules on how to calculate vital financial metrics such as cash flow and asset values, the group said. “Investors have increasingly voiced concerns that accounting standard-setting has not kept pace with the evolution of the sources of value and risk, leaving investors without the information they need to value modern companies,” the Securities and Exchange Commission’s investor advisory committee wrote in a resolution passed on Wednesday. The SEC should step in to modernize FASB, the committee said, and impose new disclosure rules for companies directly if the accounting board takes too long to update standards for companies’ formal accounts.

FINRA delays timeline on rules for remote work: Advisor Hub reports that the Financial Industry Regulatory Authority has postponed the deadline for the Securities and Exchange Commission to rule on proposed regulations governing brokers who work remotely. At FINRA's request, the SEC's decision on the proposal, which would let brokers who work from home be inspected once every three years, has been delayed until Oct. 31 to allow more time for consideration.