SEC Office of the Investor Advocate Publishes Its Policy Recommendations on Mandatory Arbitration and Registered Index-Linked Annuities Research

The Office of the Investor Advocate of the U.S. Securities and Exchange Commission (SEC) has published its annual report on activities it conducted in fiscal year 2023 and which it is presenting to U.S. congress. The office, tasked with advancing investors‘ interests in regulatory processes, thereby presents the following key activities (for all of them, please refer to the report itself):
– the Office engaged in various research and investor testing to find out more about the functioning of registered index-linked annuities (RILAs) and investors‘ awareness of this functioning (see the description in the comment box). The results show that RILAs are very complex and thus rarely understood, tend to have too many fees, and are intransparent for investors.
– the Office engaged in various surveys to find out about investors‘ know-how of the „accredited investor status“ and about their perception of whether or not investments should be restricted in any way for „accredited investors“.
– the Office engaged in various activities to enhance the accessibility to the equity market for investors. For instance, it has contributed to the SEC’s (proposed) ruling to „narrow “tick sizes” for quoting and trading certain stocks, lower market access fee caps, and accelerate transparent pricing“.
– the Office conducted more research and engaged with investors as regards mandatory arbitration provisions in investment advisory agreements. What the Office found is that such terms are often used to the detriment of investors, leaving them with few alternatives to resolve disputes in their interests. Therefore, the Office notes that more regulation seems to be necessary in this context. It may be worth noting that the Office also advocates enhanced disclosures about such arbitration provisions by financial advisers.
– the Office also worked with investors to find out about cyber security issues they are facing. Cyber incidents thereby seem to occur at a higher frequency than in the past and so are losses faced by investors. However, the Office is convinced that the Commission is treating this matter with the appropriate urgency and is advancing adequate regulatory measures to address this issue.