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SEC Chairman Identifies Guiding Principles

On July 12, 2017, newly appointed SEC Chairman Jay Clayton delivered a speech at the non-partisan Economic Club of New York wherein he set forth several high-level guiding principles for the agency.  In general, these remarks focused on (i) ensuring protections for retail investors, (ii) positioning the SEC as a regulator which is able to evolve on pace with industry, and (iii) taking a more measured and effects-focused approach to rulemaking.   In addition, Chair Clayton stated that he opposed any wholesale changes to the SEC’s fundamental regulatory approach.

Underlying Mission: Focus on Retail Investors

On a global level, Chair Clayton cited the SEC’s three-part mission of: (i) protecting investors; (ii) maintaining fair, orderly, and efficient markets; and (iii) facilitating capital formation. Furthermore, Chair Clayton stated that his analysis of whether the SEC is meeting its mission starts and ends with the long-term interests of the “Main Street investor.”  With this end in mind, he specifically identified affinity and microcap fraud as areas where Main Street investors were “most exposed,” as well as fraudulent schemes conducted through the use of technology.

Keeping Pace with the Industry

In the area of regulatory evolution, Chair Clayton stated that the agency is now applying sophisticated analytic strategies to detect companies and individuals engaging in suspicious behavior. Furthermore, the agency is adapting machine learning and artificial intelligence to new functions, such as analyzing regulatory filings.  Chair Clayton also announced that he had asked the SEC staff to develop a plan for creating a Fixed Income Market Structure Advisory Committee.

Rulemaking: Looking for Efficiency

With respect to rulemaking, Chair Clayton opined that the SEC should review its rules retroactively and accept input from sources outside of the agency as to whether the SEC’s rules are functioning as intended. He expressed concern that vaguely worded rules created the risk for either subpar compliance solutions or, conversely, an overinvestment in compliance control systems.  In perhaps a reference to an upcoming rulemaking initiative, Chair Clayton made reference to a statement he had previously issued in June which sought public input on standards of conduct for investment advisers and broker-dealers.

Enforcement: More of the Same

Turning to enforcement, Chair Clayton cautioned that the SEC would continue to deploy significant investigative and enforcement resources. Perhaps alluding to a continued focus in the private funds industry, he delivered a pointed notice to “sophisticated participants” in the securities markets in noting that the agency would continue to use its enforcement and examination authority to support market integrity.

Cybersecurity

Chair Clayton also cited a continuing focus in the area of cybersecurity. He specifically noted that information sharing and coordination among regulatory agencies was a key component of addressing potential cyber threats.  However, Chair Clayton also suggested that the SEC should be cautious about punishing responsible companies that find themselves as victims of sophisticated cyber penetrations.

With these basic tenets in place, Chair Clayton is likely to set upon establishing the means to achieve the policy goals that he has articulated. Time will be the ultimate barometer to determine the resemblance that the SEC under Chair Clayton’s leadership will bear to that of its predecessors.

© 2019 Proskauer Rose LLP.

TRENDING LEGAL ANALYSIS


About this Author

Anthony M. Drenzek, Special regulatory Counsel, Proskauer Rose, Attorney, Finance Policy Lawyer
Special Regulatory Counsel

Tony is special regulatory counsel in the Corporate Department and a member of the Private Funds Group and the Private Equity & Hedge Fund Litigation team. His practice focuses on advising U.S. and offshore private fund managers on all aspects of federal, state and SRO organizational and operational compliance, with a specific emphasis on the Investment Advisers Act of 1940.

Tony assists U.S. and offshore private fund clients in registering with the SEC as investment advisers, or reporting as exempt reporting advisers, and complying with...

617.526.9655
Joshua Newville, Proskauer Rose, regulatory enforcement attorney, industry compliance legal counsel, securities exchange commission lawyer
Partner

Joshua M. Newville is a partner in the Litigation Department in New York. His practice focuses on commercial litigation and regulatory investigations. Mr. Newville advises companies and individuals in securities litigation and compliance matters. He also focuses on internal investigations and enforcement matters. Prior to joining Proskauer, Josh was senior counsel in the U.S. Securities and Exchange Commission’s Division of Enforcement, where he investigated and prosecuted violations of the federal securities laws. Josh served in the Enforcement Division’s Asset Management Unit, a specialized unit focusing on investment advisers and the asset management industry.  His prior experience with the SEC provides a unique perspective to help private investment funds and their advisers manage risk and handle regulatory issues.

212-969-3336
Michael R. Hackett, Litigation Attorney, Proskauer Law Firm
Associate

Michael R. Hackett is an associate in the Litigation Department and a member of the Asset Management Litigation practice. His practice focuses on disputes and regulation involving private funds, including private equity, venture capital, hedge, real estate and private credit funds, as well as other limited partnerships, where he regularly advises funds, fund sponsors, investment advisers and institutional and individual investors.

Mike’s experience representing private fund clients runs the gamut, from control contests within advisers, to...

617-526-9723