Corporate Governance

How the Wall Street Reform Act Impacts Smaller Businesses: Changes to the Securities and Exchange Commission (the ?SEC?)

By J Robert Brown Jr.

Title IX of the Act is entitled the 'Investor Protection and Securities Reform Act of 2010.' The first substantive provision of this Title is found in § 911 of the Act which amends the 1934 Act to establish an investor advisory committee to 'advise and consult with the [SEC] on a number of different issues, including 'regulatory priorities of the [SEC].'65 Section 915 requires the SEC to establish an office of the Investor Advocate within the SEC to (among other things) assist retail investors in resolving problems such investors may have with the SEC and to identify areas where retail investors would benefit from changes in SEC regulations (or those of self-regulatory organizations).66 Although a part of the SEC, the Office of Investor Advocate is intended to be independent of the SEC. As a further requirement of the Act, the SEC must conduct and within two years submit to Congress a study to (among other things) identify 'the existing level of financial literacy among retail investors' and to determine 'methods to improve the timing, content and format of disclosure to investors.'67

In further protection of retail investors, the Act specifically gives the SEC authority to issue rules designating the documents and information that a broker-dealer must provide to a retail investor 'before the purchase of an investment product or service by the retail investor.'68 In addition, the Act amends Section 15 of the 1934 Act is amended to allow the SEC to promulgate rules providing that broker-dealers giving personalized investment advice about securities to a 'retail customer' —a customer who uses such advice primarily for personal, family, or household purposes —may be subject to the same fiduciary duty as investment advisors.69

The Act also requires the SEC to improve its own financial controls70 and to conduct a study on what has been referred to as the SEC's revolving door – where it is perceived that the regulators move directly to the regulated.71 This study is to be conducted by the Comptroller General.

Herrick K. Lidstone, Jr., Burns Figa & Will, PC

_____________________________________________________________________________

65 Section 911 of the Act adds § 39 to the 1934 Act.
66 Section 915 adds § 4(g) to the 1934 Act.
67 Section 917 of the Act.
68 Section 919 of the, adding § 15(n) to the 1934 Act. It should be noted that the SEC has believed it has had this authority in the past, as is evidenced by Rules 15c2-11 and the penny stock rules, 15g-1 through 15g-6.
69 Section 913(g) of the Act, adding § 15(k) to the 1934 Act.
70 Section 961 of the Act.?

71 Section 968 of the Act.

Full post as published by The Race to the Bottom on August 02, 2010 (boomark / email).