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SEC Chair Wants to Slash Watchdog’s List of New Rules

By Rita Raagas De Ramos November 9, 2017

SEC chairman Jay Clayton announced Wednesday the regulator’s next near-term agenda and four-year strategic plan will be shorter and more streamlined than those crafted by his predecessors. This is expected to help the SEC improve governance and transparency as well as to make it more nimble when reacting to major events and changes to the broader regulatory landscape, he said.

“A thoughtful approach to transparency can enhance both governance and investor protection,” he said at the Practising Law Institute's 49th annual conference on securities regulation in New York.

Clayton said the SEC’s near-term agenda swelled over the years, resulting in too many rulemaking goals needing “years” to make it to rule adoption. Over the past 10 years the SEC has completed, on average, only a third of the rules listed on its near-term agenda, he said.

That's not a criticism of the approach of his predecessors – prior SEC chairs Mary Schapiro, Elisse Walter, Mary Jo White, and acting chair Michael Piwowar – because they “were charged with an unprecedented number of mandates,” he said. “The Commission has limited resources, and rulemaking is, by its very nature, time- and resource-intensive.”

Clayton said the SEC’s next near-term agenda – to be published as part of the federal government’s Unified Agenda in coming months – will be shorter than in the recent past.

He expects some may question the prioritization reflected in the SEC’s upcoming near-term agenda, noting “they have a right to do so, and we welcome constructive comments.” But the aim of the streamlined agenda is to be transparent to Congress, investors, issuers, and other interested parties about the rules the SEC intends to pursue and has a reasonable expectation of completing over the coming year, he said.

He stressed that a shorter near-term agenda does not mean the SEC's work is slowing down.

Clayton said the SEC is applying a similar approach to its new four-year strategic plan, to be published in early 2018. The SEC’s current strategic plan, developed in 2014, contains 66 strategic initiatives and 58 performance goals and indicators.

Clayton expects those numbers to be “noticeably smaller” in 2018's edition. The plan will outline key challenges and trends facing markets and regulatory programs. It will also announce the SEC’s strategic priorities and communicate the initiatives it is pursuing to help attain those goals. “The plan will reflect what we need to do, what we should do, and what we believe we can do,” he said.

Deterring, mitigating and eliminating misconduct through transparency and other measures is among the SEC’s priorities, Clayton said, noting that enforcement is an “essential component” of the SEC’s work. He said he has empowered the SEC’s co-directors of enforcement – Stephanie Avakian and Steven Peikin – to pursue an effective enforcement program that reflects the risks to retail investors in today’s marketplace. “Where opacity exists, bad behavior tends to follow,” Clayton observed. “We are on the lookout for ways to fight the type of opacity that can create an environment conducive to misconduct.”

A persistent issue that emerges throughout the SEC’s inspection and enforcement programs is “complex, obscure, or hidden fees and expenses that can harm investors,” Clayton said.

Jay Clayton

Citing examples of common fee disclosure issues, Clayton said some firms may invest client money in a mutual fund share class that charges a 12b-1 fee when a lower-cost share class of the same fund is available. Other problems result when some advisors improperly choose to use fund assets to pay expenses that should be paid by the firm. Some customers may be deceived if brokers charge fees designed to cover the costs of services provided while also marking up securities prices to earn a profit that is not disclosed.

While Clayton expects the SEC’s enforcement division to continue to actively pursue cases involving hidden or inappropriate fees, he also expects the SEC to explore whether more can be done to clarify fee disclosures made to retail investors and thus reduce the opportunities for misbehavior.

Meanwhile, investor education remains a priority.

“Clearly there are fraudsters in our marketplace who are seemingly unafraid of, or undeterred by, the risk of being caught,” Clayton said. While the SEC targets the underlying conduct of those fraudsters, it should also arm investors with information making it more difficult for them to be defrauded, he said.

Such knowledge will be particularly valuable when bad actors – those who seek to evade regulatory requirements and harm investors for personal gain – shift from the registered space for investment advisors and broker-dealers to the unregistered space, he said. Specifically, to protect investors against bad actors, Clayton said the SEC is creating a website containing a searchable database of individuals who have been barred or suspended as a result of federal securities law violations.

Other areas identified by Clayton in need of more transparency are penny stocks, transaction processing and initial coin offerings.