Moran said he “fully supports the initiative’s objectives to provide important protections for our retail investors. That’s not the issue.” But added that “for there to occur something in which there seemingly was no notice denies [firms] the ability to voluntarily comply and eliminates the opportunity for them to have due process.”

“Understood,” Chairman Clayton replied.

With the June 2020 implementation of Regulation Best Interest looming, the industry is worried that the SEC plans to enforce the more nebulous parts of the 1,000-plus page set of rules using enforcement. For instance, not even the term “best interest” is defined in the new regulation.

While FSI supports Reg BI, it is concerned about the SEC's Share Class Selection Disclosure Initiative and similar enforcement activity involving bank sweep programs and clearing fee markups.

“It is a reasonable expectation that the SEC will establish clear rules before engaging in enforcement. However, the SEC’s ongoing practice of regulation by enforcement is unfair and hinders independent financial services firms’ and advisors’ ability to properly serve their clients,” FSI Executive Vice President and General Counsel David Bellaire said in a statement following the hearing.

“It is time for the SEC to return to rulemaking and guidance that sets clear expectations before resorting to enforcement activity. The Commission should provide transparency and opportunity for comment throughout the process as well as adequate time for compliance,” Bellaire added.

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