DOL issues FAB on fiduciary rule enforcement

March 23, 2017

As we have discussed in previous articles, on February 3, 2017, President Trump signed a memorandum instructing the Department of Labor to reconsider its new Conflict of Interest regulation (aka “fiduciary rule), and related prohibited transaction exemptions (PTEs). On March 1, 2017, DOL released a proposal to delay the “applicability date” of the regulation by 60 days, from April 10, 2017 to June 9, 2017. Following on those actions, on March 10, 2017, DOL issued a Field Assistance Bulletin (FAB 2017-01) addressing concerns about how the new Conflict of Interest rule (and related prohibited transaction exemptions (PTEs)) will be enforced while DOL considering the applicability date delay.

Briefly, the FAB:

Notes that some financial services institutions have expressed concern about how the regulation (and related PTEs) will be applied if DOL does not finalize the applicability extension before April 10, 2017 or decides not to extend the applicability date.

Reiterates DOL’s statement (in a set of pre-Trump Administration FAQs) that “The Department’s general approach to implementation will be marked by an emphasis on assisting (rather than citing violations and imposing penalties on) plans, plan fiduciaries, financial institutions and others who are working diligently and in good faith to understand and come into compliance with the new rule and exemptions.”

Adopts a “temporary enforcement policy” with respect to the regulation package providing that: (1) If the delay is not adopted until after April 10, DOL “will not initiate an enforcement action because an adviser or financial institution did not satisfy conditions of the rule or the PTEs during the ‘gap’ period.” (2) If no delay is adopted, DOL “will not initiate an enforcement action … provided that the adviser or financial institution satisfies the applicable conditions of the rule or PTEs … within a reasonable period.”

Concerns remain

While the FAB does address some concerns about possible DOL action, it does not address, e.g., prohibited transaction issues with respect to IRAs, which arise under the Internal Revenue Code and are enforced by IRS (not DOL). Moreover, even with respect to the issues over which DOL does have jurisdiction, the FAB only addresses DOL enforcement policy. There may be a possibility of a private right of enforcement, which the FAB would not cover.

In the FAB the DOL does, however, state that “the Department intends to issue a decision on the March 2 proposal in advance of the April 10 applicability date.” And most expect that it will in fact extend the applicability date.

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We will continue to follow this issue.

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