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9.2 SEC Studies and Rulemaking

<< Title IX Overview

9.2 SEC Studies and Rulemaking

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9.2.       SEC Studies and Rulemaking.  The Act requires a wide range of studies intended to identify potential improvements in investor protection, and SEC functions and management.  It also authorizes the SEC to issue rules governing broker-dealer relationships with customers and implementing the recommendations of the various studies.

9.2.1.    Fiduciary Duty and Duty of Care of Brokers, Dealers and Investment Advisers to Customers.  The Act gives the SEC authority to establish a fiduciary duty standard of care for broker-dealers providing personalized investment advice to a retail customer.  It does so by directing the SEC to study the effectiveness of existing standards of care regarding personalized investment advice to retail investors, to identify gaps in protection for investors, and to recommend any necessary changes.  The SEC is authorized to adopt the same standard for broker-dealers providing personalized investment advice to retail customers as investment advisers are currently subject to under the Investment Advisers Act.  The standard was described in the Supreme Court's decision in SEC v. Capital Gains Research Bureau.  The SEC is also authorized to issue rules to facilitate disclosures of conflicts of interest, to prohibit or restrict certain sales practices, conflicts of interest and compensation, and to require notice of limited proprietary offerings. [§913] 

In conducting the study, the SEC is directed to consider SEC and FINRA enforcement resources; substantive differences in broker-dealer and investment adviser advice; state legal standards; the effect on customer access to products and services from imposing an Advisers Act standard of care; the effect of imposing an investment adviser's standard of care on broker-dealers; authorizing the SEC to designate a self-regulatory organization to oversee investment advisers; eliminating the broker-dealer exclusion from the definition of investment adviser; the varying levels of service provided by brokers, dealers and investment advisers; and the benefits and harms from changes.

The SEC study is due 6 months from enactment of the Act.  SEC rulemaking to implement conclusions and recommendations of the study is to commence 2 years after enactment of the Act.

9.2.2.    SEC Study of Investor Financial Literacy.  The SEC is directed to study investor financial literacy, methods to improve the timing, content and format of disclosures, methods to increase the transparency of expenses and conflicts of interest in connection with financial services and mutual funds, and the most effective existing private and public investor education efforts.  The SEC study is due 2 years after enactment of the Act. [§917] 

9.2.3.    Comptroller General Study of Mutual Fund Advertising.  The Comptroller General is directed to study mutual fund advertising to identify existing and proposed regulatory requirements for mutual fund advertising, current mutual fund marketing practices including use of performance information, merged funds and incubator funds, the impact of fund advertising on consumers, and recommendations to improve investor protections. The Comptroller General's study is due 18 months after enactment of the Act. [§918]

9.2.4.    Comptroller General Study of Potential Conflicts of Interest Within Firms.  The Comptroller General is directed to conduct a study of potential conflicts of interest between the investment banking, equity and fixed income analyst functions within a firm and make recommendations for the protection of investors. The Comptroller General's study is due 18 months after enactment of the Act. [§919A]  

9.2.5.    Comptroller General Study on Securities Litigation.  The Comptroller General is directed to conduct a study on the impact of authorizing a private right of action against anyone who aids or abets another in violating the securities laws. The Comptroller General's study is due 1 year after enactment of the Act.  [§929Z]

9.2.6   SEC Rulemaking for Paying Agents of Missing Security Holders.  The SEC is directed to revise its rules governing missing security holders to require that any paying agent (issuer, transfer agent, broker-dealer, custodian and others) with respect to such a security must provide a written notice to the missing security holder that a check (of at least $25) sent to the security holder has not been negotiated.  The notice must be sent within 7 months after the original check was sent.  The SEC is required to adopt rules within 1 year of enactment of the Act.  [§929W]

9.2.7     Reports to SEC on Cancelled Securities.  The Act amends the lost and stolen securities reporting provisions of the Exchange Act to require banks, broker-dealers, and others to report cancelled securities to the SEC in addition to lost, stolen, and counterfeit securities.  [§929D]