The SEC Office of the Investor Advocate (“OIA”) identified “problematic products or practices” and summarized steps the agency and self-regulatory organizations took to respond to investor concerns during the past year.
In a “Report on Activities,” the OIA Investor Advocate identified “potentially problematic products or practices during Fiscal Year 2018” as reported by the SEC, NASAA, FINRA and the MSRB. These include, among others: (i) initial coin offerings, cryptocurrency and blockchain; (ii) a variety of scams and schemes (related to, e.g., regulator impersonations, Ponzi schemes, natural disasters and investments in “unicorns,” binary options, oil and gas, marijuana, microcap stocks and real estate, among others); (iii) cybersecurity; (iv) investment fees and expenses; (v) suitability of wrap fee programs; (vi) registrations of third-party providers, marketers and gatekeepers; (vii) a variety of risks (e.g., trading on margin, data aggregation, disclosure, and use of credit cards); and (vii) other practices (e.g., pennying and prearranged trading in connection with primary offerings).
In the report, the OIE focused on five key policy areas: public company disclosure, equity market structure, municipal market reform, accounting and auditing, and fiduciary duty.
On some of the broader policy questions, the OIA:
- approved of the SEC’s current approach to ICOs, including its emphasis on the responsibilities of gatekeepers and others under securities laws;
- encouraged FINRA to publicize the “data sets, models, and rankings” it uses to evaluate broker risk to help retail investors;
- urged the SEC to prioritize reforming “outdated transfer agent regulations”; and
- supported the continuing publication of investor education materials regarding the use of margin debt, although the OIA did not recommend any immediate regulatory changes.
Investor Advocate Rick A. Fleming recounted specific steps the OIA took to address investor concerns. The OIA:
- requested additional research on the impact of proposed amendments to modernize public company reporting requirements;
- collaborated with SEC staff and several SROs to “encourage equity market structure reforms designed to enhance market resilience, efficiency, transparency, and fairness”;
- reviewed rulemaking proposals to reform the regulation of the fixed income markets and municipal securities markets;
- supported the SEC’s proposed amendments concerning enhanced municipal securities disclosure under Exchange Act Rule 15c2-12;
- provided feedback in response to MSRB’s draft amendments to rules on primary offering practices;
- continued monitoring accounting and auditing standard setters:
- urged the FASB to return to its earlier proposal for harmonizing its definition of materiality with “the courts, the SEC, and the PCAOB” due to investor concerns;
- encouraged the SEC’s attention to problems regarding non-GAAP financial measures;
- monitored developments with respect to auditor attention requirements;
- sought internal and external feedback on accounting and auditing issues;
- assisted the SEC in researching how proposed Regulation Best Interest would affect investors; and
- submitted a comment supporting FINRA’s proposal to amend Rule 2111.
Mr. Fleming also stated that budgetary constraints affected some 2018 initiatives, including the agency’s failure to “build out” the Ombudsman role and certain research functions.