House Financial Services Committee Chairman Jeb Hensarling's Financial Choice Act is "exactly the wrong path" to protecting investors, and includes "numerous provisions" that will "reduce transparency, expose retail investors to unjustified risks, and promote conflicts of interest," says Massachusetts' top securities regulator.
In an April 25 letter to Hensarling, R-Texas — whose committee plans to hold a hearing on the Financial Choice Act Wednesday — Commonwealth Secretary William Galvin slams the bill to replace Dodd-Frank as "a gift to the investment industry and Wall Street special interests."
The Financial Services Committee approved the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (CHOICE) Act in September.
The Committee plans to discuss the updated version of the bill, dubbed Financial Choice Act 2.0, on Wednesday.
"The Act purports to benefit Main Street and Mom and Pop," Galvin wrote. "Instead, it is a generous gift to Wall Street and a grave threat to the interests of retail investors. Various provisions of the Act will have the effect of reducing the SEC's rulemaking and enforcement powers; diminish or eliminate required disclosures; expose retail investors to high-risk segments of the securities markets, where they have often been hurt; reduce market transparency; and remove protections against severe financial conflicts of interest."
Galvin noted that the Choice Act will go through "many iterations" as it moves through Congress, and that while he plans to weigh in with more detailed concerns, his letter takes issue with three areas: the need to protect the states' police powers relating to securities, his opposition to provisions that preempt state regulatory authority and language in the Act to revoke the Labor Department's fiduciary rule.
Labor's fiduciary rule "addresses a longstanding problem by requiring that any person providing retirement financial advice must act in the customer's best interest," Galvin wrote. "The adoption of the rule represents a victory for retirement investors; I urge that the rule be maintained and conscientiously administered," he added, noting that the Massachusetts Securities Division has conducted "numerous enforcement actions relating to fraud and abuse in the sale of investments to retirement investors."
