Tuesday, March 10, 2015

Republicans Request Proof of SEC/DOL Coordination on Fiduciary Rulemaking

[This story previously appeared in Securities Regulation Daily.]

By John Filar Atwood

Two Republican lawmakers have written to Department of Labor (DOL) Secretary Thomas E. Perez requesting that he produce by March 18 documents that prove there has been coordination between the DOL and the SEC on the DOL’s rulemaking to expand the definition of fiduciary. Representative John Kline (R-Minn.), Chairman of the House Committee on Education and the Workforce, and Rep. Phil Roe (R-Tenn.), Chairman of the Subcommittee on Health, Employment, Labor and Pensions, said they were prompted to write by recent claims by SEC Commissioner Daniel Gallagher that DOL’s efforts to engage the SEC were a mere “check the box” exercise.

DOL rulemaking. DOL is working on a re-proposal to amend the definition of the term “fiduciary” to more broadly define as fiduciaries, employee benefits plans, and individual retirement accounts (IRAs) those persons who render investment advice to plans and IRAs for a fee. DOL initially proposed the rule in 2010, but withdrew it after the proposal drew criticism. DOL is now planning to move forward again with the rulemaking.

In their letter to Secretary Perez, Kline and Roe said that they remain concerned that the project could conflict with SEC rulemakings authorized by the Dodd-Frank Act. Specifically, Dodd-Frank Section 913 directs the SEC to study the standard of care for investment advisers and broker-dealers, and authorizes the SEC to promulgate rules based on the results.

Kline and Roe noted that policymakers have consistently warned that DOL’s approach could conflict with the SEC’s rulemaking, leading to uncertainty, higher costs, and less financial information for investors. Coordination between the agencies is necessary, they said, but it is not clear that it is occurring. As a result, they have requested documents and communications demonstrating the coordination between DOL and the SEC on the project.

Gallagher’s remarks. The lawmakers said that they were alarmed by Gallagher’s recent statement that to his knowledge DOL has not formally engaged the SEC commissioners on its rulemaking effort. Any efforts by DOL, he claimed, were merely designed to “legitimize the runaway train that is their fiduciary rulemaking.”

Kline and Roe stated that a revised notice of proposed rulemaking should not be issued until after Congress is satisfied that sufficient coordination has occurred between the SEC and DOL. They asked Secretary Perez to furnish all communications after September 19, 2011 between DOL and the SEC regarding the rulemaking. They also requested all documents and materials addressing how DOL has considered, adopted or discarded any concerns raised by the SEC as it revised its regulatory proposal.

The lawmakers asked Secretary Perez to provide the requested information by March 18, or to inform the committee in writing as to why he cannot meet the deadline and the date by which he will provide the requested information.

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