Part 1: Highlights from LACBA’s 52nd Annual Securities Regulation Seminar – SEC Chair Jay Clayton’s Opening Remarks

U.S. Securities and Exchange Commission (SEC) Chair Jay Clayton delivered Opening Remarks from Washington DC by video.  SEC Chair Jay Clayton highlighted the following SEC achievements on regulatory and policy fronts:

1. Regulation Best Interest: The Broker-Dealer Standard of Conduct: The SEC has adopted final rules that establish a standard of conduct for broker-dealers when they make a recommendation to a retail investor of any securities transaction or investment strategy involving securities.  Under Regulation Best Interest:
   • Broker-dealers must act in the best interest of the retail investor at the time the recommendation is made;
   • Broker-dealers and investment advisers must deliver to retail investors a short relationship summary not to exceed four pages;
   • the SEC has clarified standards of conduct and fiduciary duty for investment advisers; and
   • the SEC has provided interpretations regarding when a broker-dealer’s advisory services are solely incidental to the conduct of the business of a broker or dealer, see here.
2. The Division of Investment Management (IM) and the Division of Corporation Finance (Corp Fin) have been working hard to modernize the regulatory framework and make the public company alternative more attractive by:
   • Adopting a new rule that replaces hundreds of rules for exchange-traded funds to come to market;
   • Expanding “Testing-the-Waters” Communications provided by the JOBS Act so that all issuers can communicate with institutional investors about potential IPOs and other registered offerings to better gauge market interest; and
   • Enhancing regulation in the OTC Markets to better protect investors from fraud and manipulation.
3. Chair Clayton described three ways that enforcement and compliance is being used to deter misconduct and punish violators to instill confidence in our markets.
   • The SEC Cyber Unit has investigated and recommended a number of cases related to digital assets including frauds by ICOS, non-fraud like celebrity promotions, failure to file registration statements, etc.;
   • Share Class Selection Disclosure Initiative for investment advisers to disclose to their clients conflicts of interest, including those conflicts associated with the receipt of 12b-1 fees, which has resulted in $35 million returned to investors.
   • The Teachers’ Initiative and the Military Service Members’ Initiative which will increase outreach to these groups to educate them about savings and investment, investment fees and expenses, retirement programs aimed at educators and service members, and the red flags of investment fraud. 
4. Lastly, the Office of Compliance Inspections and Examinations will continue to focus on preventing harm to retail investors, particularly seniors and those saving for retirement.

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