Legislation is gaining ground that could help reduce the regulatory burden on smaller financial advisory businesses.
The U.S. House of Representatives on Wednesday eased the burden on small businesses and individual financial advisers by requiring federal oversight agencies to do more to consider how they might be adversely affected by proposed regulations. passed the bill.
Under current rules, advisors overseeing less than $25 million in client assets must register with the Securities and Exchange Commission, whose mission is to regulate securities markets and advisors and ensure safe and orderly markets for investors. is not allowed. The requirement to register with the watchdog does not apply until a company has at least $110 million under its control.
House lawmakers voted 367 to 8 across party lines on Wednesday. Small Business Renewal Act, Send it to the Senate. If the bill is passed, the SEC will be required to review possible changes to the definition of small business and revise it every five years accordingly.
Investment Advisers Association vice president Neil Simon said the standard was based on the Federal Regulatory Flexibility Act of 1980 to help the SEC anticipate what impact the proposed regulation might have. He said that this criterion needed to be reviewed as it determines when extra effort is required. small advisory firm.
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Simon noted that most advisors don’t register with the SEC unless they have more than $100 million in assets under management. That means federal regulators have little need to predict how the proposed new rules will affect small businesses, he said.
“If this is enacted…and I hope it is, the SEC will pay more attention to smaller advisors, especially in the current torrent of regulatory proposals. deaf,” said Simon.
The SEC has the power to unilaterally change the definition of a small business. However, it has never been revised since 1998, If you set your AUM threshold below $25 million.
The IAA, in addition to recent SEC specific rules, The sheer number of proposals that regulators have put before the public for comment and approval in recent years. Industry tracker Broke and Broker blog reported on March 16. SEC Proposes 35 New Rules for 2022more than in any year since 2016.
Groups such as the IAA argue that small businesses often carry more regulatory burden than their larger rivals. The smaller the company, they say, the less likely it is to have staff or departments strictly dedicated to compliance.
Speaking on the House floor before the bill passed, Rep. Ann Wagner, a Republican from Missouri and chairman of the Capital Markets and Financial Services Subcommittee, said, “Small businesses have so many lawyers and regulatory professionals. I can’t afford to rent a house.” Large multinationals can afford to pay the costs of doing business and still comply with all regulations. “
The SEC may also try to ease the regulatory burden of new rules by giving small businesses time to comply. The SEC’s proposed changes to custody rules would require advisors to securely store certain types of assets purchased from third-party banks, broker-dealers, and trust companies on behalf of their clients, including those with assets under management of $1 billion. Permits will be given to companies with a dollar or less. 18 months to compliance. If you have more advisors, you will only have one year.
The Small Entity Update Act authorizes the SEC to consider possible amendments to the definition of a small entity within one year of enactment and report the results to Congress. Among other things, the SEC is reviewing how the U.S. capital markets have grown since the definition was last revised, and to ensure that a “meaningful” number of companies fall into the small entity category. It will be necessary to come up with a criterion for
In that case, the SEC would have to revise the definition of a small business after five years and every five years thereafter.