Longstanding relationships with regulators lead to long-lasting results
By Haley Fry
All businesses that operate in the financial services industry are regulated, typically by multiple agencies across different layers of government. For organizations operating in the highly specialized corners of the industry — such as the portfolio diversifying investment space — strong relationships with regulators are paramount for a host of reasons.
In recent years, as both regulation and industry offerings have evolved, it has become abundantly clear that industry participants working closely with regulators — including the Securities and Exchange Commission (SEC), North American Securities Administrators Association (NASAA) and Financial Industry Regulatory Authority (FINRA) — can be mutually beneficial.
“It’s key to stay constantly engaged with regulators,” says Anya Coverman, director of government affairs and general counsel at the Institute for Portfolio Alternatives (IPA), whose members must engage regulators at federal and state levels. “On a base level, we have to let them know — and also constantly remind them — that we exist, but it’s also important for the industry to frequently meet with regulators to discuss industry trends and respond to their requests for comment.”
The IPA encourages all parties — the SEC as well as FINRA and state regulators — to work together to develop uniform regulations that are non-duplicative and foster investors’ continued access to appropriate and effective investments and financial advice that serves their needs.
From the point of view of Jason Goode, a partner at Alston & Bird focused on guiding REITs and real estate funds through public and private securities offerings, the impact of effective collaboration leads to mutually beneficial outcomes for the industry — and regulators.
“For example, with the SEC, the industry has been able to establish a consistent, effective collaboration,” says Goode. “In the portfolio diversifying investments industry specifically, the SEC hasn’t published a lot of written guidance. However, through the IPA and its annual conferences, the SEC is able to informally share their expectations for filings.”
This direct line of communication builds understanding between the two parties that allows the industry to proactively address the top concerns of regulators. In turn, as the industry submits filings for new products, this upfront understanding helps to save businesses and regulators time.
For example, at IPAVision 2017, representatives from the SEC, FINRA and NASAA all took the main stage to address progress in key areas. This year, IPASummit 2018 attendees will hear directly from SEC Commissioner Michael S. Piwowar regarding the SEC’s current regulatory agenda, what to expect from the Commission’s fiduciary rule proposal and how that may dovetail with the Department of Labor’s fiduciary rule.
Piwowar was designated acting chairman of the Commission by President Donald Trump from January 23, 2017, to May 4, 2017. As a key player at the SEC, this direct insight from Piwowar — who was first appointed to the Commission by President Barack Obama and was sworn in on August 15, 2013 — will help the industry understand the new direction on one of the biggest pieces of regulation facing it in the past decade.
How to build lasting regulator relationships
Building productive relationships between the industry and its regulators does not happen overnight and requires the industry to be both reactive and proactive. The presence of key regulators from the SEC, such as Piwowar, representatives from FINRA and representatives from NASAA at industry conferences is just a starting point. The in-person — and even one-on-one — meetings are just as important, and they must be frequent to maintain the strong ties that enable productive relationships.
“The collaborative relationship doesn’t happen on a one-off basis. It becomes productive over time —when you’ve put in five years of work,” Goode says.
“It’s a two-prong approach,” adds Howard Hirsch, vice president and general counsel at Griffin Capital Company. “You have to be reactive to issues but you also have to be proactive.”
Hirsch added that the IPA board has made a concerted effort over the years to take this two-prong approach and reach out to the industry’s regulators in years when there were simply informal, educational opportunities as well as years when new regulations were being considered for the industry and investors.
“We constantly review and evaluate regulatory issues that may affect the business objectives of the industry, and, because of that, the IPA is an outstanding resource for regulators,” says Hirsch, who currently serves as the chair of the IPA Legal and Regulatory Affairs Committee.
“The IPA — and the Legal and Regulatory Affairs Committee, specifically — aims to educate industry participants about trends and issues and, as appropriate, prepare responses and position papers by the IPA that have broad industry acceptance,” Coverman adds.
The collaborative approach over time has led regulators to reach out to the IPA for meetings as well.
“We have regulatory bodies reach out to us to have meetings,” says Hirsch. “We just sent a delegation to meet with FINRA. The meeting came about after they reached out to the IPA as part of their 360 review on issues they would like to address. At the time, there was nothing on FINRA’s agenda to regulate but simply topics they needed education on.”
Bringing an entire industry together
The relationships regulators have with industry organizations — like the IPA — help to provide stable leadership for the portfolio diversifying investments industry.
“Businesses have a full-time job, meaning they have to run their business, and that is why the IPA is on the ground in Washington, D.C., every day,” says Coverman. “You have to constantly keep an eye out and ear to the ground for issues that could impact the industry.”
The industry and industry organizations must come together to demonstrate to regulators the practical implication of what they are doing.
“Regulators help us understand the reason behind industry rules and guidance, and we help them see how it will impact our business,” Goode says. “Then, we come together to determine what outcomes are intended or not. The best relationships are thoughtful and aim to make regulation better — it’s very productive for the industry and the end investor.”
“At the end of the day, the industry and its regulators all have the common goal of working in the best interests of investors,” says Coverman.
Continued collaboration with the SEC, FINRA and the states, as well as with Congress and the administration, through the IPA and other industry partners will ensure that American investors and businesses have choice among a wide-range of investment opportunities.
“Because we have strong relationships with our regulators, we know they are not trying to harm any one business,” Hirsch says. “That is why we work to help them understand what helps businesses, hurts business and how we can come together to serve investors.”