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Overview of Investor Protection Provisions of Dodd-Frank Act

Stephen J. Crimmins, Kay A. Gordon, and Matt T. Morley of K&L Gates have posted an article outlining the investor protection provisions of Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Dodd-Frank Act strengthens the SEC by increasing its budget, expanding its jurisdiction and subpoena powers, and improving its ability to regulate investment professionals.  Specifically, the K&L Gates memo looks at the following changes:

  • Whistleblower Provisions
  • Expanded Secondary Liability
  • Jurisdiction Over Foreign Securities Transactions
  • Doubling the SEC’s Budget
  • Penalties in Administrative Proceedings
  • Fiduciary Standard for Brokers
  • Securities Industry-Wide Bars
  • SEC Authority to Restrict Customer Arbitration Agreements
  • Nationwide SEC Trial Subpoenas
  • Deadlines for SEC Enforcement Actions, Inspections and Examinations
  • Investor Advocacy
  • SEC Operational Improvements
  • Other Substantive Changes

All of these enhancements to the SEC's resources and powers are being touted as investor protection provisions.  Of further interest is the memorandum's list of controversial areas where the Dodd-Frank bill has not legislated, but rather, punted to the SEC to study and regulate, or recommend more legislative changes.  These mandated SEC studies will include:

  • The effectiveness of existing standards of care applicable to brokers, dealers and investment advisers in providing personalized investment advice and recommendations about securities to retail customers, and regulatory gaps relating to these issues;
  • Whether the SEC should engage the assistance of SROs in conducting examinations of investment advisers;
  • The adequacy of examinations of investment advisory activities of dually registered broker-dealers and investment advisers and their affiliates;
  • The level of financial literacy of retail investors, and what means might be most effective to further educate them;
  • Potential improvements in disclosures to investors regarding financial intermediaries, investment products, and investment services;
  • Methods to increase the transparency of expenses and conflicts of interests in transactions involving investment services and products, including shares of open-end companies; and
  • How to better facilitate investor access to information regarding disciplinary actions; regulatory, judicial, and arbitration proceedings; and other information about registered investment advisers, brokers and dealers. 

Additionally, the Act directs the Government Accounting Office to conduct studies – most due within eighteen months – regarding:

  • Mutual fund advertising;
  • Conflicts of interest that may result from having investment banking and securities analyst functions within the same firm;
  • Regulation of financial planners;
  • Employment of former SEC personnel by institutions regulated by the SEC;
  • Proprietary trading by and within insured depository institutions, bank holding companies, financial holding companies and certain of their affiliates and other entities;
  • Person-to-person lending; and
  • The [effect] of the amendments made by the Act to the exemption for smaller issuers from the registered public accounting firm attestation requirements mandated by Sarbanes-Oxley Section 404(b).

Depending on how the SEC decides to address each of these areas of study, we could see quite a volume of new rulemaking over the next few years.  The full text of the K&L Gates memorandum is available at: