Through an editorial in the Wall Street Journal on May 23, 2017, Department of Labor (DOL) Secretary Acosta announced that DOL will let the fiduciary rule become applicable on June 9 on a transition basis.1 Secretary Acosta noted that DOL was unable to find any principled basis under the law for further delay. This means that financial institutions need to immediately turn their attention to how they plan to run their business in compliance with the transition fiduciary rule on and after June 9.

DOL Enforcement Policy

In an effort to blunt the impact of Secretary Acosta's surprise announcement in the WSJ, DOL contemporaneously issued a temporary enforcement policy applicable to the transition period (June 9, 2017, until January 1, 2018). During this transition period, DOL will not take enforcement action against fiduciaries "who are working diligently and in good faith to comply with the fiduciary rule and exemptions." DOL's announcement also notes that the IRS will apply a similar policy in respect of prohibited transactions under Section 4975 of the Internal Revenue Code. We note that DOL's policy is not directly applicable to any private claims that may be asserted by customers.

Future of the Rule

In February 2017, the President instructed DOL to reevaluate the rule.2 In response, DOL has received numerous public comments on the rule pursuant to a now closed comment period and just announced that it intends to collect additional public input via a "Request for Information" that will ask, among other things, whether a delay to the January 1, 2018, full compliance date may be appropriate, thus setting up the potential for further delay of full implementation of the rule. In the WSJ editorial, Secretary Acosta notes that DOL will use the input it receives from the public to determine "how to revise this rule" and invites the Securities and Exchange Commission to participate in the process. How DOL may revise the rule is unclear, but Secretary Acosta's editorial makes clear that a rule that "limits choice and benefits [trial] lawyers is not what this administration envisions." We note, however, that there is potential for a challenge in the courts to any rulemaking rolling back the rule, and that such a lawsuit may delay or further muddy the prospects for relief from the rule.

What to do Now?

Only a short time remains before the rule becomes applicable on a transition basis on June 9. Accordingly, financial institutions should immediately put efforts into high-gear to satisfy DOL's "working diligently in good faith to comply" standard of conduct. In addition, firms should closely monitor DOL's progress with the rule (and consider participating in DOL's information collection process) to be prepared for whatever DOL's final decision on the fate of the rule may be.

Footnotes

1. For a discussion of the fiduciary rule transition period, see Arnold & Porter Kaye Scholer Advisory, DOL Delays Fiduciary Rule—But Significant Portions of New Rule Are Likely to Take Effect in June 2017.

2. See Arnold & Porter Kaye Scholer Advisory, New Administration Moves Toward Repealing or Revising the Department of Labor's Fiduciary Rule.

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