FINANCIAL CHOICE ACT: CHANGES IN GOVERNMENTAL SECURITIES REGULATION MAY BE COMING

While you might have heard that the House has passed a bill that would repeal portions of the Dodd-Frank Act (a bill enacted in July 2010 in the wake of the Great Recession to provide additional government regulation of the financial industry), you might not have heard that the nearly 600 page “Financial CHOICE Act of 2017” (H.R. 10) has provisions covering a broad range of topics that could have a significant impact on government regulatory agencies as well as require a number of specific changes to the Securities and Exchange Commission. While these changes will only take effect if or when the Senate passes the Financial Choice Act, the Financial Choice Act is a bill worth monitoring to see what changes may come. A few of the more notable changes proposed in the bill include:

• Enhancement of SEC civil penalties for violations of securities laws including tripling the amount of monetary fines when the penalty is tied to illegal profits and permitting penalties equal to investor loss in cases involving “fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement.”
• Requiring all financial regulators to complete a cost-benefit analysis of any new regulation.
• Creating a process to permit a recipient of a Wells notice to appear before the Commission in-person.
• Publication of an updated enforcement manual outlining the SEC’s policies and procedures.
• Repealing the authority of the SEC to prohibit persons from serving as officers or directors. Amending the Investment Company Act of 1940 to heighten the pleading standard and require a security holder of a registered investment company to state with particularity all facts forming the basis of their breach of fiduciary claim under Section 36(b) and raising the burden from a “preponderance of the evidence” standard to a “clear and convincing evidence” standard.

Looking forward, it is clear that changes could be coming. Those changes could greatly impact how federal securities regulations are created, enforced, and even litigated. We’ll be keeping an eye on this bill to see what come to fruition and so should you.