The last rites for the Department of Labors Fiduciary Rule are turning out to be an extended affair.
Things are beginning to look pretty gloomy for the Department of Labors Fiduciary Rule. A U.S. Court of Appeals for the 5th Circuit three-judge panel this month struck down the entire Rule, describing it as "backdoor regulation." With the SEC now working on its own fiduciary regulations that may prove dominant in this area, the DOL is now faced with the question of whether the appellate court ruling is worth appealing.
What everyone expected to happen, happened on November 29. The Department of Labor published in the Federal Register its decision to extend the transition period for compliance with three Fiduciary Rule exemptions by 18 months: from January 1, 2018 to July 1, 2019. It also extended its non-enforcement policy regarding those exemptions for the same time period.
SEC chairman Jay Claytons testimony before a Senate committee was not limited to cybersecurity. He also used his September 26 testimony before the Senate Committee on Banking, Housing and Urban Affairs to address other topics, including developing standards of conduct for advisers and broker-dealers - and let Congress and the public know that collaboration with the Department of Labor on these standards has already begun.
The Department of Labor keeps finding ways to prevent key elements tied to its Fiduciary Rule from taking effect. The latest: an 18-month application date delay on three Rule exemptions, the likelihood that the DOL will "in the near future" propose "a new and more streamlined class exemption," and calls for comments in several other areas.
More than 90 comments have been received by the SEC to date in response to agency chairman Jay Claytons June 1 call for comments in regard to standards of conduct for investment advisers and broker-dealers. Among the trends emerging from the comments received to date is that the SEC, in coordination with the Department of Labor, create a separate standard of conduct for broker-dealers.
It seems compliance with various aspects of the Department of Labors Fiduciary Rule keep getting pushed back. In the latest case, the DOL on August 9 issued a notice of administrative action, stating that it plans to delay the compliance date for three Fiduciary Rule exemptions, including the Best Interest Contract Exemption, from January 2018 to July 2019.
The dust is far from settled when it comes to Department of Labor Fiduciary Rule exemptions. The DOL on June 29 issued a "request for information" seeking public input on extending the applicability date of certain exemptive provisions associated with the Fiduciary Rule, as well as possibly changing the requirements of those provisions in the exemptions. The result, if extended dates are adopted and/or those exemptive requirements are changed, may bring relief, confusion and perhaps some frustration to advisers who would otherwise have had to comply with all the exemptive provisions by January 1.
The full U.S. House of Representatives passed the Financial CHOICE Act this month. While its passage may be welcomed by those who want to see the DOL Fiduciary Rule killed and the SECs use of administrative hearings curtailed, both they and opponents should note that it has a long way to go before becoming law.
It sounded so nice: The Department of Labor will not take enforcement actions against advisers, broker-dealers and others that may violate the DOLs Fiduciary Rule until January 2018. Left unsaid in the DOLs recent announcement, however, was what the ultimate fate of the Rule itself will be, and what asset managers should do between now and January to comply.