SIFMA Says We Need to Get Dodd-Frank Right

At the opening of the Securities Industry and Financial Markets Association’s (SIFMA) annual “State of the Industry” meeting this morning, Ryan said the industry’s inability to see many of the problems that led to the financial crisis caused the “unprecedented statutory and regulatory activities” currently underway.

The Dodd-Frank Wall Street Reform and Consumer Protection Act produced comprehensive legislation that has been delegated to various regulatory agencies for them to “fine-tune” and implement (see “Advisers Should Take Note of Financial Reform Bill Provisions“).  Ryan believes that 2011 will answer many outstanding questions as to how financial services will be changed and what effect those changes will have.

SIFMA intends to participate in the rule-making process “actively and positively,” said Ryan, “so [the various agencies] understand if you push here, you pull there,” and what the end result is likely to be. SIFMA Chairman, John Taft, said regulatory agencies have been tasked with writing 250 new rules.  The Association will be focusing on the following areas:

• Systemic risk regulation
• Resolution authority
• Volcker rule   
• Fiduciary standard
• OTC derivatives
• Securitization

“The challenge will be to operationalize the principles of Dodd-Frank, which is to make the industry safer, without impeding on what we do best, which is facilitating economic growth,” said Taft.   

Fiduciary Standard 

Ira Hammerman, general counsel for SIFMA, says the question of defining a universal fiduciary standard pre-dates Dodd-Frank and the financial crisis. The Securities and Exchange Commission (SEC) had been tasked with writing a report on the subject, to which SIFMA provided their opinion last August.Hammerman said the SEC needs to look at this in two parts. First, the SEC need to define what it means by fiduciary. Hammerman says “it’s a wonderful word…but it’s not contained in statute; it’s case law that has developed over years.” Clearly defining it in its own right is the first step. Then, the SEC will need to offer guidance on how firms should “operationalize” the new standard.   

Chairman Taft emphasized this message. “While we support a full fiduciary standard for personalized investment advice, the rules that operationalize it should not restrict client choice when it comes to who they want to work with, what kind of an adviser, or with respect to products and services they currently have access to, or how they pay for that personalized advice.  Preserving choice and access are key ingredients for a new federal fiduciary standard of care,” he asserted.

Ryan concluded the meeting by saying as more proposals and rules are issued, SIFMA will conduct more “flash” educational meetings. “We hope to get to a point where everyone is as best educated as possible in an area filled with complexity,” he said.  “What is the impact on our business model? That is what everyone is asking, and it can’t be answered yet.”  He also noted that President Obama’s editorial in the Wall Street Journal today sets the right tone for moving forward, but rule-making in the U.S. alone will not solve the larger issues.  “A key component will be synchronization of these rules on a global basis.”

On its Web site, SIFMA outline the agencies that will be working on the Dodd-Frank Act and the processes involved, which can be seen here.  Senator Dodd also addressed SIFMA at its annual meeting in November (see "Dodd Defends His Bill").