In recent remarks, Commissioner Uyeda addressing the Council of Institutional Investors outlined his concerns regarding several SEC rulemakings.  The members of the Council of Institutional Investors are responsible for combined assets under management of nearly $5 trillion and include state and local government pension plans, among others.  The Commissioner addressed the many rules that have recently been adopted that impact private funds and their advisers, referred to collectively as the private fund adviser rules.  The private fund adviser rules are now the subject of a litigation challenge.  The Commissioner outlined the SEC’s reliance in promulgating the rules on Section 211(h)(2) of the Investment Advisers Act, which was added by Section 913(g) of the Dodd-Frank Act, which amended the Securities Exchange Act and the Advisers Act to authorize the Commission to impose a fiduciary standard of care for brokers, dealers, and investment advisers.  The same section also directed the SEC to “examine and, where appropriate, promulgate rules prohibiting or restricting certain sales practices, conflicts of interest, and compensation schemes for brokers, dealers, and investment advisers that the Commission deems contrary to the public interest and the protection of investors.”  Yet, Title IX of the Dodd-Frank Act did not address private funds; funds were addressed in Title IV of the Dodd-Frank Act.  The Commissioner argues that the SEC’s broad reading of the provisions as the basis for authority is perhaps too significant an extension for a section that focuses on broker-dealers and advisers, not on funds at all.  The Commissioner questions whether this interpretative approach to Section 211(h) may in essence represent a bit of a slippery slope—if there is no distinction to be made between retail investors and institutional investors, then, should other distinctions also be ignored?  Carrying through this analysis, in his comments, the Commissioner noted that Section 211(h) does not differentiate among SEC-registered investment advisers, state-registered investment advisers and exempt advisers. The National Securities Market Improvement Act of 1996 provides that states cannot impose substantive regulations on SEC-registered investment advisers, but is silent on the SEC’s ability to impose regulations on state-registered investment advisers—so does Section 211(h) give the SEC authority to regulate state-registered investment advisers?  The Commissioner notes that, in his opinion, the SEC’s interpretation of the reach of Section 211(h) extends beyond what Congress may have intended in light of the context of Dodd-Frank Act Section 913.  The Commissioner takes issue, for somewhat similar reasons, with the SEC’s rule regarding the definition of a “dealer” as well as its approach to what constitutes a “security” for purposes of the investment contract test in Howey.  The lack of certainty, predictability or a “limiting principle,” which would circumscribe rulemaking to areas specifically authorized by statute, can lead to regulatory creep as it were or to a slippery slope. 

See the full text of his comments here.