NIBA Industry Alert:
Keynote Address at the National Society of Compliance Professionals National Meeting



By: Commissioner Daniel M. Gallagher
U.S. Securities and Exchange Commission
Washington, D.C.

October 17, 2012


[Click here to read entire address] ...Coincidentally, tomorrow marks the first anniversary of my Senate confirmation. They say a "dog year" is equal to seven human years. Given the pace and volume of the SEC's rulemaking in this post-Sarbanes-Oxley, post-Dodd-Frank era, sometimes it feels like my first "Commissioner year" was equal to about 25 years as well.


Before I begin, I must tell you that my remarks today are my own and do not necessarily reflect the views of the Commission or my fellow Commissioners.


In January 2011, the Commission, with Commissioners Casey and Paredes dissenting, issued a staff report on a study, conducted pursuant to Section 913 of the Dodd-Frank Act, of the effectiveness of the existing regulatory standards of care that apply when brokers and investment advisers provide personalized investment advice to retail customers.1 In addition to mandating that study, Section 913 authorized, but did not require, the Commission to adopt rules establishing a duty of care for brokers identical to that which applies to investment advisors - in other words, a uniform fiduciary duty for brokers and investment advisors - and to undertake further efforts to harmonize the two regulatory regimes.


Earlier this month, at SIFMA's Market Structure Conference, I noted that in order to address the market structure issues we currently face, we need to understand not just the present state of affairs, but also how things came to be the way they are today - the evolution of law, regulation and market practices. I believe the same principle should apply in the context of considering harmonizing our rules imposing conduct requirements on brokers with our rules that do the same for investment advisers. It's important to understand the reasons why Congress decided over 70 years ago to regulate investment advisers through the Investment Advisers Act of 1940, which was separate and distinct in time, form, and substance from the Securities Exchange Act of 1934 that established a regulatory framework for brokers and dealers.


...I imagine many of you don't consider yourselves to be "supervisors." Others of you may be unsure as to whether you are, in fact, supervisors, and, if so, what that means. Frankly, while the line of cases addressing alleged failure to supervise liability provides some guidance on the subject, many questions still remain with regard to what makes a person a "supervisor" as well as the actions such a person must take in order to satisfactorily carry out his or her supervisory duties.


In addition, it's important to note that failure to supervise jurisprudence has developed almost exclusively through cases involving associated persons of broker-dealers, as there are relatively few investment adviser failure to supervise cases. As a result, as unclear as failure to supervise liability is on the broker-dealer side, it's even less clear for investment advisers.


Click here to read entire address

Michael Fugler, NIBA Advisory Committee Chairman

Jim Twaddell, NIBA Educational Committee Chairman

Emily Foshee, NIBA Executive Director

View our profile on LinkedIn   Follow us on Twitter   Visit our blog